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Full text of "Medicaid program investigation : hearings before the Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, House of Representatives, One Hundred Second Congress, first-[second] session"

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(Part  2) 








FEBRUARY  28  AND  MARCH  26,  1992 

Serial  No.  102-137 

Printed  for  the  use  of  the  Committee  on  Energy  and  Commerce 

V  1 

(Part  2) 








FEBRUARY  28  AND  MARCH  26,  1992 

Serial  No.  102-137 

Printed  for  the  use  of  the  Committee  on  Energy  and  Commerce 

58-688i=f  WASHINGTON  :  1992 

For  sale  by  the  U.S.  Government  Printing  Office 
Superintendent  of  Documents,  Congressional  Sales  Office,  Washington,  DC  20402 
ISBN  0-16-039189-X 


JAMES  H.  SCHEUER,  New  York 
HENRY  A.  WAXMAN,  California 
PHILIP  R.  SHARP,  Indiana 
EDWARD  J.  MARKEY,  Massachusetts 
AL  SWIFT,  Washington 
MIKE  SYNAR,  Oklahoma 
W.J.  "BILLY"  TAUZIN,  Louisiana 
RON  WYDEN,  Oregon 
RALPH  M.  HALL,  Texas 
GERRY  SIKORSKI,  Minnesota 
RICK  BOUCHER,  Virginia 
JIM  COOPER,  Tennessee 
TERRY  L.  BRUCE,  Illmois 
J.  ROY  ROWLAND,  Georgia 
THOMAS  J.  MANTON,  New  York 
C.  THOMAS  McMILLEN,  Maryland 
GERRY  E.  STUDDS,  Massachusetts 
PETER  H.  KOSTMAYER,  Pennsylvania 
RICHARD  H.  LEHMAN,  California 

Michigan,  Chairman 
NORMAN  F.  LENT,  New  York 
CARLOS  J.  MOORHEAD,  California 
MATTHEW  J.  RINALDO,  New  Jersey 
DON  RITTER,  Pennsylvania 
THOMAS  J.  BLILEY,  Jr.,  Virginia 
DAN  SCHAEFER,  Colorado 
JOE  BARTON,  Texas 
ALEX  McMillan,  North  Carolina 
J.  DENNIS  HASTERT,  Illinois 
CLYDE  C.  HOLLOWAY,  Louisiana 
FRED  UPTON,  Michigan 

John  S.  Orlando,  Chief  of  Staff 
Alan  J.  Roth,  Chief  Counsel 
Margaret  A.  Durbin,  Minority  Chief  Counsel/Staff  Director 

Subcommittee  on  Oversight  and  Investigations 

JOHN  D.  DINGELL,  Michigan,  Chairman 
J.  ROY  ROWLAND,  Georgia  THOMAS  J.  BLILEY,  Jr.,  Virginia 

RON  WYDEN,  Oregon  NORMAN  F.  LENT,  New  York 

DENNIS  E.  ECKART,  Ohio  DAN  SCHAEFER,  Colorado 

JIM  SLATTERY,  Kansas  FRED  UPTON,  Michigan 

GERRY  SIKORSKI,  Minnesota 

Reid  P.F.  Stuntz,  Staff  Director/Chief  Counsel 
Stephen  F.  Sims,  Deputy  Staff  Director 

D.Ann  Murphy,  Special  Assistant 
Clifford  R.  Traisman,  Special  Assistant 

Gretchen  Tickle,  Research  Assistant 
Thomas  Montgomery,  Minority  Counsel 




Hearings  held  on: 

February  28,  1992   1 

March  26,  1992   323 

Testimony  of: 

Adamany,  David,  president,  Wayne  State  University   230 

Adelman,  Susan  Hershberg,  on  behalf  of  Michigan  State  Medical  Society..  280 
Bilirakis,  Hon.  Michael,  a  Representative  in  Congress  from  the  State  of 

Florida   324 

Carpenter,  Mary  Brecht,  deputy  director,  National  Commission  to  Pre- 
vent Infant  Mortality   397 

Chiles,  Hon.  Lawton,  Governor,  State  of  Florida   327 

Conyers,  Hon.  John,  Jr.,  a  Representative  in  Congress  from  the  State  of 

Michigan   6 

Ellstein,  Charles  L.,  group  vice  president,  Health  Delivery  and  Finance, 

Michigan  Hospital  Association   280 

Farver,  Patrick  D.,  vice  president,  Blissfield  Manufacturing  Co   60 

Foster,  James  R.,  administrator.  Three  Rivers  Area  Hospital,  St.  Joseph 

County,  Michigan   251 

Garrison,  Frank,  president,  Michigan  AFL-CIO   10 

Grad,  Rae  K.,  executive  director,  National  Commission  to  Prevent  Infant 

Mortality   397 

Gregory,  Warren,  staff  professor,  House  Fiscal  Agency,  MI   77 

Hiltz,  Richard  S.,  president,  Mercy  Memorial  Hospital,  Monroe,  ML,  on 

behalf  of  Michigan  Hospital  Association   295 

Hirschland,  David,  assistant  director.  Social  Security  Department,  United 

Auto  Workers  International  Union   12 

Hollister,  Hon.  David,  a  State  Representative  from  Michigan   77 

Levin,  Hon.  Sander  M.,  a  Representative  in  Congress  from  the  State  of 

Michigan   10 

Maher,  Walter  B.,  director.  Federal  Relations,  Chrysler  Corp   33 

Mangano,  Michael,  Deputy  Inspector  General,  Department  of  Health  and 

Human  Services   417 

McDonough,  Robert,  board  member.  Three  Rivers  Area  Hospital,  St. 

Joseph  County,  Michigan   251 

McNamara,  Edward  H.,  executive,  Wayne  County,  MI   126 

McParland,  Susan  K.,  staff  attorney,  Michigan  Legal  Services   136 

Scott,  Deborah,  office  of  executive,  Wayne  County,  MI   126 

Smith,  Vernon  K.,  director,  Medical  Services  Administration,  Michigan 

Department  of  Social  Services   87 

Material  submitted  for  the  record  by  Hon.  John  Waihee,  Governor  of  Florida: 
Letter  and  statement   457 



FRIDAY,  FEBRUARY  28,  1992 

House  of  Representatives, 
Committee  on  Energy  and  Commerce, 
Subcommittee  on  Oversight  and  Investigations, 

Detroit,  Mich. 

The  subcommittee  met,  pursuant  to  notice,  at  9  a.m.,  in  the 
Wayne  State  University  Student  Center  Ballroom,  Detroit,  Mich., 
Hon.  John  D.  Dingell  (chairman)  presiding. 

Mr.  Dingell.  The  subcommittee  will  come  to  order. 

Before  the  business  of  the  committee  commences,  I  would  express 
the  thanks  of  the  Chair  of  the  subcommittee  to  all  that  have 
helped  make  this  possible,  including  Wayne  State  University  and 
Dr.  Adamany.  Their  assistance  has  been  outstanding.  We  believe  it 
will  help  us  to  gather  the  facts  we  need  to  move  forward  on  one  of 
the  great  problems  that  confronts  this  Nation — the  problem  of  de- 
livery of  adequate  health  care  and  the  deterioration  of  an  already 
inadequate  system  that  has  imposed  enormous  hardships  on  indus- 
try, individuals  and  government  alike,  at  all  levels. 

I  want  to  express  my  particular  thanks  to  my  two  dear  col- 
leagues on  the  Committee  on  Energy  and  Commerce.  The  first,  Mr. 
Dan  Schaefer,  my  good  friend  and  colleague,  who  has  come  here 
from  Washington  but  who  serves  ably  the  people  of  the  State  of 
Colorado,  a  State  for  which  I  have  a  particular  fondness  and  a 
great  sense  of  warmth.  Mr.  Schaefer  is  a  very  valuable  Member  of 
the  Committee  on  Energy  and  Commerce,  and  he  has  other  quali- 
ties that  endear  him  to  me,  as  he  very  well  knows. 

The  other,  of  course,  our  good  friend  and  colleague  Mr.  Upton  • 
from  Michigan.  Mr.  Upton  is,  again,  an  extremely  available 
Member  of  the  Committee  on  Energy  and  Commerce,  and  it  is  to 
Mr.  Upton  that  I  look  in  many  instances  for  assistance  in  dealing 
with  some  of  the  savage  problems  that  confront  the  State  of  Michi- 
gan. I  would  say,  in  those  matters,  neither  he  nor  our  good  friend 
Mr.  Schaefer  have  ever  been  found  wanting. 

When  we  have  Michigan  problems,  the  fact  that  Mr.  Upton  and  I 
do  not  sit  on  the  same  side  of  the  political  aisle  has  never  in  any 
way  divided  us  or  prevented  us  from  working  in  close  harmony  for 
the  welfare  of  the  State  and  the  country. 

I  also  want  to  thank  and  express  my  gratitude  to  my  dear  friend, 
Mr.  Conyers,  a  colleague  from  the  State  of  Michigan,  the  Chairman 
of  the  Government  Operations  Committee,  one  of  the  most  impor- 
tant investigative  and  legislative  bodies  in  the  United  States,  for 
his  presence  today  and  for  his  assistance  to  us.  He,  like  the  other 
three  of  us  here  before  you,  has  long  been  interested  in  the  prob- 



lem  of  providing  adequate  medical  care  to  the  people  of  this  coun- 
try. And,  like  the  other  three  of  us,  he  is  going  to  be  working  very 
diligently  to  resolve  this  enormously  difficult  issue. 

I  have  a  lengthy  statement  which  without  objection  will  be  in- 
serted into  the  record.  I  will  summarize  it  very  briefly  for  the  pur- 
pose of  the  hearing  so  it  can  be  understood. 

First,  we  are  troubled  about  the  fact  that  we  have  a  $1  trillion 
health  bill  in  this  country,  with  some  35  million  Americans  receiv- 
ing no  health  care  whatsoever  and  some  35  to  37  million  receiving 
inadequate  health  care. 

We  are  consuming,  at  this  time,  12  percent  of  the  gross  national 
product  to  pay  the  costs  of  providing  health  care  services  to  the 
people  of  the  United  States.  That  figure  is  the  most  rapidly  grow- 
ing cost  item  in  the  American  economy,  growing  at  the  rate  of  12 
to  15  percent  per  year. 

By  the  year  2060,  some  100  percent  of  the  gross  national  product 
of  the  United  States  will  be  expended  on  one  particular  activity — 
that  is,  providing  health  care,  leaving  nothing  for  any  other  human 
activity,  investment  or  anything  else  in  this  Nation. 

That  is  clearly  intolerable.  Our  current  system  leaves  enormous 
numbers  unserved,  poorly  served,  but  with  still  excessive  costs  to 
those  who  do  get  care 

In  Canada  to  the  north,  8  percent  of  the  gross  national  product  is 
spent  on  health  care  costs.  In  Britain,  6  percent.  Yet  in  those  two 
nations,  everyone,  everyone  receives  basic  health  care  needs  as  a 
matter  of  right,  and  their  cost  containment  mechanisms  work  far 
better  to  prevent  the  kind  of  economic  excesses  that  we  see  not 
only  presently  but  in  the  future  for  this  country. 

The  United  States  has  found  that  its  system  of  Medicaid  is  not 
working.  This  subcommittee  has  had  a  number  of  hearings  that 
have  identified  fraud,  abuse  and  waste  in  the  system.  This  hearing 
will,  in  part,  review  those  questions.  But  it  will,  in  part,  review  a 
number  of  other  items. 

The  subcommittee  has  found  excessive  charges  in  billings  for 
Medicaid  bills.  It  has  found  that  there  are  major  problems  with 
regard  to  health  care  billings.  Some  5  to  15  percent  of  health  insur- 
ance claims,  according  to  the  Chamber  of  Commerce,  are  indeed 

Some  $50  to  $80  billion  each  year  is  squandered  in  wasteful, 
fraudulent  schemes.  The  total  administrative  burden  imposed  on 
this  country,  not  seen  in  places  like  Canada  or  Britain  because  of 
their  single-payer  systems,  is  somewhere  between  $100  and  $200 
billion  of  the  $1  trillion  costs,  which,  I  reiterate,  all  are  going  up  at 
an  excessive  rate. 

We  are  being  forced  to  choose  between  health  care  for  our 
people,  and  different  kinds  of  health  care  for  different  classes  of 
people.  At  this  moment  health  is  being  rationed  by  the  simple  in- 
ability of  both  the  system,  individuals  and  our  insurers  to  provide 
health  care  for  our  people.  Clearly,  that  must  be  corrected. 

The  United  States  faces  a  crisis  in  this  area.  It  is  one  which  is 
not  coming.  It  is  one  which  is  here.  None  of  the  choices  before  this 
Nation  is  easy.  None  of  the  choices  is  going  to  be  without  cost. 
Clearly,  if  they  are  faced  now  and  if  we  understand  what  we  have 
and  what  must  be  done,  we  can  actually  come  out  saving  money 


and  having  better,  fairer  and  more  equitable  treatment  for  our 

[The  opening  statement  of  Chairman  Dingell  follows:] 

Opening  Statement  of  Hon.  John  D.  Dingell 

Over  the  course  of  the  last  year,  this  subcommittee  has  conducted  a  series  of  hear- 
ings examining  the  causes  fueling  the  deterioration  of  our  Nation's  health  care  de- 
livery system,  with  particular  focus  on  the  Medicaid  program.  We  have  heard  from 
State  and  Federal  Government  officials,  providers  and  community  leaders.  Unfortu- 
nately, the  picture  that  is  coming  into  focus  is  the  unchecked  growth  of  a  $700  bil- 
lion medical-industrial  complex  that  is  crippling  our  economy  and  shortchanging 
our  citizens. 

What  we  have  heard  at  our  hearings  is  that  there  are  more  than  enough  "vil- 
lains" responsible  for  this  mess.  Many  in  the  industry  are  too  often  motivated  by 
avarice.  Many  patients  have  unrealistic  expectations  and  continue  to  want  every- 
thing at  little  or  no  cost  to  them.  Befuddled  bureaucrats  are  choking  themselves, 
providers  and  insurers  with  their  own  paperwork  glut.  And  often  well-intentioned 
policymakers  pass  laws  designed  to  make  more  services  available  to  more  patients, 
to  save  taxpayers'  money  and  to  improve  the  quality  of  care — only  to  find,  too  late, 
that  the  laws  can  have  exactly  the  opposite  effect. 

In  these  troubled  economic  times,  the  health  care  industry  is  unique  in  its  virtual- 
ly unparalleled  revenues  and  high  profits.  This  system — whether  by  design  or  ineffi- 
ciency— overcharges  patients,  insurance  companies  and  the  government  seemingly 
at  will.  Despite  all  the  government  regulations,  and  despite  all  the  insurance  compa- 
ny and  independent  audits,  some  hospitals  still  charge  exorbitant  amounts  for 
countless  products.  One  example  is  the  Humana  Hospital  Corporation,  and  one  of 
those  items  is  the  $103  crutch — for  which  Humana  paid  $8.  But  the  crutch  was  not 
an  isolated  case.  The  costs  of  1,500  items  were  reviewed  by  this  subcommittee.  We 
found  that  over  40  percent  of  the  items'  costs  were  marked  up  500  percent  or  more, 
and  that  almost  20  percent  were  marked  up  1,000  percent  or  more.  Equally  trou- 
bling is  that  no  one  had  caught  those  overcharges.  In  fact,  apparently  no  one  has 
ever  even  questioned  those  bills.  None  of  the  oversight  mechanisms,  redundant  sys- 
tems, and  paperwork  has  identified  what  the  subcommittee  believes  to  be  wide- 
spread practices  throughout  the  hospital  industry — nor  has  it  significantly  recouped 
any  overcharges  billed  to  the  government.  That  is  a  particularly  alarming  conclu- 
sion when  the  price  tag  for  the  administration  of  these  programs  is  projected  at 
some  $4  billion  for  Medicaid,  $2  billion  for  Medicare  and  close  to  $130  billion  in  the 
private  insurance  industry. 

Unfortunately,  there  is  still  more  waste,  fraud  and  abuse  in  the  behemoth  that 
our  health  care  system  has  become.  The  Chamber  of  Commerce  estimates  that  5  to 
15  percent  of  all  paid  health  insurance  claims  are  fraudulent.  Experts  warn  that 
between  $50  to  $80  billion  each  year  is  squandered  in  wasteful  and  fraudulent 
schemes.  Earlier  this  month  here  in  Detroit,  FBI  Director  William  Sessions  an- 
nounced that  50  more  agents  will  be  assigned  to  ferret  out  health  care  fraud. 
Indeed,  the  Bureau  stated  that  just  as  it  used  an  arsenal  of  sophisticated  investiga- 
tive techniques  to  address  organized  crime  in  the  1980's,  similar  efforts  to  combat 
health  care  fraud  will  be  critical  in  the  1990's. 

The  millions,  if  not  billions  of  dollars,  in  undetected  fraud  could  be  well  spent  to 
reweave  a  health  care  safety  net  for  the  growing  numbers  of  those  going  without 
health  care.  Those  millions  could  also  be  used  to  avoid  the  $11  billion  bill  paid  by 
this  country's  manufacturers  to  hospitals  for  care  they  provide  to  people  who  are 
not  eligible  for  government  health  benefits  or  who  are  uninsured.  That  cost  shifting 
obscures  who  is  really  paying  for  what,  making  it  ever  more  difficult  to  devise  effec- 
tive cost  control  mechanisms  that  also  protect  patients  from  poor  quality  care.  And 
it  makes  it  more  difficult  for  our  businesses  to  compete,  as  the  burden  is  shifted  to 
them  at  a  time  that  they  themselves  are  grappling  with  the  rising  costs  of  health 
care  benefits  for  their  own  employees,  furthermore,  it  creates  yet  another  means  for 
the  less  scrupulous  to  hide  their  overbilling,  double  billing  and  other  fraudulent  fi- 
nancial practices. 

Other  factors  add  still  more  to  the  health  care  bill.  The  deteriorating  doctor/pa- 
tient relationship — which  many  suggest  is  a  direct  result  of  this  market-driven 
system — has  driven  up  costs.  Many  physicians  and  policymakers  believe  that  the  so- 
called  "malpractice  crisis"  has  driven  providers  to  practice  more  "defensive  medi- 
cine." The  Rand  Corporation  concluded  recently  that  $50  billion  a  year  could  be 
trimmed  from  the  medical  bill  if  unnecessary  procedures  were  weeded  out.  The 
"malpractice  industry"  is  blamed  for  rising  costs  to  the  tune  of  $8  to  $30  billion 


each  year.  As  more  and  more  States — and  now  the  President — call  for  malpractice 
reform,  the  truth  is  that  we  don't  know  the  extent  to  which  malpractice  litigation 
forces  costs  up  and  whether  costs  will  go  down  as  a  result  of  the  types  of  reform 
being  proposed. 

The  Medicaid  program  reflects  all  these  problems,  both  here  in  Michigan  and 
across  the  country.  Today  is  not  the  first  time  that  we  have  examined  Michigan's 
mounting  problems,  and  our  State's  efforts  to  cope  with  them.  My  good  friend.  Rep- 
resentative David  Hollister,  recently  testified  before  this  subcommittee  in  Washing- 
ton on  the  difficult  choices  being  made  here  at  home.  I  am  acutely  aware  that  our 
great  State — which  once  could  boast  one  of  the  best  Medicaid  programs  in  the  coun- 
try— is  now  struggling  to  maintain  even  minimum  benefits. 

As  you  know  only  too  well,  Medicaid  has  eaten  up  the  State  budget— just  as  it  has 
in  other  States.  Total  State  health  care  spending  has  increased  by  $2.6  billion  since 
1981— up  nearly  130  percent  in  10  years.  At  the  same  time,  Michigan  has  lost  $10 
billion  in  Federal  funding.  And  local  governments  have  borne  75  percent  cuts  in 
real  terms.  As  Federal  funding  has  dwindled,  Federal  mandates  for  Medicaid  have 
mushroomed,  leaving  the  States  holding  the  bag. 

Making  matters  still  worse,  Michigan's  economy  has  suffered  tremendous  blows. 
Our  State  has  lost  over  33  percent  of  its  manufacturing  jobs  since  1980.  In  the  all 
too  rare  instances  in  which  new  jobs  have  been  created,  60  percent  of  them  pay  less 
than  $7,000.  Not  surprisingly,  over  1  million  people  in  Michigan — the  majority  of 
whom  are  working — are  going  without  health  insurance. 

The  sad  facts  of  more  and  more  layoffs  and  budget  cuts  in  Michigan  are  that  new 
categories  of  people  are  in  need  of  social  services  of  all  types.  Homelessness  has 
taken  on  new  meaning  as  more  of  our  citizens  have  family  members  or  neighbors 
who  have  been  laid  off  and  left  with  no  means  to  support  themselves  or  their  fami- 
lies. Detroit  continues  to  have  the  highest  rate  of  infant  mortality  of  any  city  in  the 
country.  Without  some  relief,  the  health  of  the  people  in  Michigan  who  are  going 
without  care  will  continue  to  deteriorate  and  the  long-term  human  and  economic 
costs  could  well  be  far  greater  than  the  cost  of  any  universal  health  care  system  we 
might  adopt. 

The  bottom  line  is  one  that  no  one  wants  to  hear.  Some  people  are  going  without 
medical  care  while  others  have  too  much  for  their  own  good.  Small  businesses  are 
hard  pressed  to  afford  the  skyrocketing  costs  of  insurance  for  their  employees. 
Larger  businesses.  State  and  Federal  Governments  are  left  holding  the  bag,  paying 
the  costs  for  those  who  do  get  care  but  who  have  no  insurance.  And,  finally,  the 
States  are  left  to  make  the  tough  choices  of  how  to  slice  up  the  ever  smaller  budget 

Questions  and  trade-offs  abound.  Should  jobs  programs  take  precedence  over 
health  care  programs?  Do  nutrition  or  substance  abuse  programs  improve  the  public 
health  more  than  traditional  "health  care"  programs?  What  is  the  real  payoff  of 
preventive  health  care  programs — do  they  warrant  more  funding  than  those  for 
organ  transplants,  experimental  procedures  or  research?  Is  education  more  impor- 
tant than  health  care?  Do  sound  environmental  programs  contribute  more  to  the 
public  health  than  the  high  tech  medicine  that  we  have  come  to  expect?  How  should 
scarce  resources  be  divided  between  the  working  middle  class,  the  indigent  or  the 
working  poor?  What  is  the  proper  balance  between  the  needs  of  the  elderly  versus 
the  needs  of  the  young? 

None  of  these  answers  and  choices  is  easy,  but  we  need  to  find  the  answers  and 
make  those  choices  now.  Testimony  by  today's  witnesses,  and  statements  submitted 
by  others  invited  but  unable  to  attend,  will  help  all  of  us  address  the  crisis  in  the 
Medicaid  program  and  in  the  health  care  delivery  system. 

Mr.  DiNGELL.  With  thanks  and  gratitude,  I  now  recognize  my 
good  friend  from  Colorado,  Mr.  Schaefer,  for  such  opening  state- 
ment as  he  chooses. 

Mr.  Schaefer.  I  thank  the  Chairman  and  I  thank  you  for  the  op- 
portunity to  be  here.  I  am  pleased  to  be  in  the  great  State  of  Michi- 
gan. I  wish  we  had  more  than  one  night,  but,  because  of  the  tax 
bill  yesterday,  we  all  came  late.  We  finally  broke  some  ice  in  the 
tax  situation,  and  now  have  to  deal  with  health  care  costs. 

It  is  truly  a  grave  situation  we  are  facing  in  both  our  private  and 
public  health  care  systems.  Increased  health  mandates  have 
brought  shortfalls  of  money,  which  has  been  reallocated  from  other 


important  programs,  such  as  education.  To  ensure  that  Medicaid  is 
fully  funded,  we  have  to  look  for  some  new  ways. 

The  situation  in  the  State  of  Colorado  is  so  serious  that  we  have 
examined  the  drastic  option  of  discontinuing  participation  in  the 
Medicaid  program.  This  would  mean  forfeiture  of  over  $500  million 
in  Federal  matching  funds. 

However,  this  burden  of  Federal  mandates  has  forced  my  State 
to  look  at  the  options.  The  Nation  is  facing  a  great  crisis  in  medical 
care.  How  we  finance  it,  both  in  our  private  and  public  health  care 
system,  is  certainly  a  problem. 

I  am  pleased  to  see  that  the  administration  has  finally  put  forth 
a  health  care  proposal  and  that  responsible  reform  efforts  are  gain- 
ing greater  attention  on  the  Floor  of  Congress.  Hopefully,  between 
the  two,  we  will  be  able  to  work  out  something  in  the  near  future 
which  will  adequately  take  care  of  the  many  millions  that  are  un- 
derinsured  or  not  insured. 

I  am  hopeful  that  today's  hearing  will  help  shed  some  light  on 
this  critical  situation,  and  I  certainly  look  forward  to  the  testimony 
of  the  witnesses.  In  particular,  I  want  to  see  what  the  individual 
problems  are  here  in  Michigan  and  try  and  compare  it  to  what  we 
have  in  the  State  of  Colorado,  and  other  States  throughout  the 

Mr.  Chairman,  I  am  pleased  to  be  here  today,  and  I  certainly 
look  forward  to  the  testimony.  I  yield  back. 

Mr.  DiNGELL.  The  Chair  thanks  the  distinguished  gentleman 
from  Colorado. 

The  Chair  recognizes  our  good  friend  from  Michigan,  my  col- 
league, Mr.  Upton,  who  works  closely,  as  I  mentioned,  with  the 
Chair  on  a  number  of  matters  of  great  importance.  The  Chair  rec- 
ognizes Mr.  Upton. 

Mr.  Upton.  Thank  you,  Mr.  Chairman.  I  commend  you  for  call- 
ing these  hearings.  In  fact,  this  is  one  of  the  few  this  subcommittee 
has  held  outside  of  Washington. 

The  fact  that  it  is  being  held  in  our  home  State,  of  course, 
heightens  my  interest,  because  it  serves  to  demonstrate  the  sub- 
committee's strong  concern  with  the  failure  to  provide  and  main- 
tain an  adequate  level  of  health  care  for  our  citizens.  Clearly  our 
health  care  system  is  broken  and  it  needs  to  be  fixed. 

We  heard  testimony  in  October  of  1991  about  how  rapidly  in- 
creasing costs  of  the  Medicaid  programs  have  affected  State  budg- 
ets. Indeed,  the  costs  of  Medicaid  have  become  a  major  budgetary 
concern  of  the  States.  They  are  concerned  about  recent  congres- 
sionally  mandated  expansions  in  Medicaid  populations,  arguing 
that  Congress  has  failed  to  consider  the  impact  on  expansions  on 
already  strained  State  budgets. 

States  have  been  forced  to  do  a  number  of  novel  approaches,  in- 
cluding the  use  of  so-called  voluntary  donations  on  taxes  on  health 
care  providers.  I  will  be  interested  in  hearing  about  innovative  ap- 
proaches taken  by  the  State  of  Michigan,  both  by  government  as 
well  as  the  private  sector. 

The  subcommittee  has  a  very  full  slate  today.  We  are  going  to 
hear  about  problems  of  access  to  care,  volume  of  care,  and  cost  of 
care  from  virtually  all  parties  concerned — State  and  local  govern- 


ments,  business,  health  care  providers,  an  advocate  for  recipients  of 
care,  both  urban  as  well  as  rural. 

I  would  like  to  welcome  Jim  Foster,  Administrator  of  the  Three 
Rivers  Area  Hospital  in  St.  Joseph  County,  located  in  the  district  I 
represent.  He  is  certainly  qualified  to  discuss  the  problems  faced  by 
rural  communities  in  providing  and  maintaining  adequate  levels  of 
health  care.  Too  many  times,  the  rural  perspective  it  seems  to  me 
to  get  short  shrifted  because  the  national  media  tend  to  focus  on 
the  admittedly  overwhelming  problems  in  urban  areas. 

But  lack  of  coverage  doesn't  mean  lack  of  pain.  Mr.  Foster  is 
going  to  demonstrate  that  that  county  feels  the  pain  every  bit  as 
the  urban  counties  do.  Mr.  Foster  will  show  us  how  to  raise  the 
constituencies'  effectiveness  to  get  together  and  address  the  serious 
problems  of  health  care,  access  and  quality  of  cost. 

I  thank  the  staff  and  the  chairman  for  putting  together  the  hear- 
ing. I  welcome  the  witnesses. 

Thank  you,  Mr.  Chairman. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman. 

The  Chair  recognizes  our  good  friend  and  colleague,  Mr.  Conyers. 


Mr.  Conyers.  Thank  you,  Mr.  Chairman. 

I  am  happy  to  be  here  for  several  reasons.  The  first  is  that  this 
was  probably  a  part  of  Detroit  that  Chairman  Dingell  himself  once 
represented,  and  it  is  good  to  have  him  back  in  the  city.  Number 
two,  this  is  the  school  at  which  I  obtained  some  humble  under- 
standing of  what  academic  subjects  were  about,  and  where  I  at- 
tended law  school  as  well. 

So  I  am  happy  to  be  on  this  campus  and  to  join  my  friends  on 
this  subcommittee  on  a  subject  that  is  very,  very  dear  to  me. 

The  first  thing  that  Chairman  Dingell  told  me  is  that  this  is  not 
about  national  health  care.  I  am  happy  that  he  did  because  he  and 
I  are  both  deeply  concerned  with  that  subject,  and  the  question  of 
national  health  insurance  is  one  that  we  are  both  working  on. 

But  this  subject  is  about  a  matter  that  the  Committee  on  Govern- 
ment Operations  has  dealt  with  on  Medicaid,  on  which  we  have  a 
GAO  report  dated  from  November  of  1990,  and  in  March  of  last 
year  we  held  hearings  in  Detroit,  in  the  Federal  building,  on  this 

Unfortunately,  the  GAO  report  and  the  hearings  dealt  with 
third-party  liability  and  the  way  moneys  are  not  fully  being  collect- 
ed from  Blue  Cross/Blue  Shield  of  Michigan,  and  I  am  happy  to 
have  the  chance  to  meet  Dr.  Vernon  Smith  of  the  Michigan  Medi- 
cal Services  Administration,  with  whom  we  will  be  having  a  long 
and  friendly  relationship. 

The  question  of  Medicaid  raises  the  subject  of  the  health  care 
problems  of  the  medically  underserved  in  Detroit.  We  are  spending 
through  the  Medical  Services  Administration  over  $2  billion  a  year, 
$51  million  in  the  county  care  program  in  Wayne  County,  which 
after  reconsideration  on  the  part  of  Governor  Engler,  was  reinsti- 
tuted  in  the  budget.  But  on  analysis  by  our  good  friend  the  attor- 
ney general,  he  found  that  we  didn't  fix  it  up  right  in  the  legisla- 


ture.  This  is  a  very  important  part  of  this  hearing,  and  we  will 
hear  some  comments  about  it  from  the  appropriate  witnesses. 

The  State's  Medicaid  budget  has  been  rising  rapidly  for  a  lot  of 
reasons,  and  we  have  experienced  a  10  percent  increase  in  the  last 
year.  And,  at  the  same  time,  Michigan's  cuts  to  general  assistance, 
including  the  attempt  to  eliminate  county  care,  have  created  intol- 
erable tensions. 

In  addition  to  that,  the  Medical  Services  Administration,  Chair- 
man Dingell,  is  trying  to  enact  a  state-wide  managed  care  approach 
for  Medicaid,  and  while  it  is  a  legitimate  effort  to  control  costs,  it  is 
going  to  present  some  wrenching  problems  when  we  start  talking 
about  the  medically  underserved  being  put  on  a  managed  care-per- 
capita  approach  in  the  delivery  of  these  health  services. 

In  Detroit,  the  hospital  failures  are  mounting.  North  Detroit 
General  and  southwest  Detroit  hospitals  are  both  in  Chapter  11.  As 
a  matter  of  fact,  we  are  working  on  a  program  through  the  federal- 
ly qualified  health  center  provisions  to  examine  restoring  them  as 
community  clinics. 

But  the  fact  of  the  matter  is  that  there  are  inadequate  reim- 
bursements for  both  Medicare  and  especially  Medicaid.  We  need  to 
examine  for  this  hearing  that  300,000  people  who  live  in  Detroit 
have  no  health  insurance.  That  is  nearly  a  third  of  everybody  in 
this  city,  a  rate  far  higher  than  the  national  average.  And  that  is 
before  we  figure  in  the  projected  cuts  and  layoffs  that  General 
Motors  has  gratuitously  visited  upon  this  city  and  State. 

At  the  same  time,  the  infant  mortality  rate  in  Detroit  is  that  of  a 
Third  World  nation.  We  are  at  26  deaths  per  1,000  births.  That 
puts  us  right  next  to  Guatemala  in  terms  of  an  infant  being  born 
and  living  to  year  one. 

We  have  a  very  serious  problem.  I  want  to  thank  Chairman  Din- 
gell and  Sandy  Levin,  who  was  at  my  hearing  in  Detroit  last  year, 
for  doing  the  kind  of  important  oversight  work  on  health  that  you 
are  doing. 

Thank  you  so  much  for  letting  me  say  good  morning  in  my  own 

[The  opening  statement  of  Mr.  Conyers  follows:] 

Opening  Statement  of  Hon.  John  Conyers,  Jr.,  a  Representative  in  Congress 
From  the  State  of  Michigan 

Mr.  Chairman  and  members  of  the  subcommittee,  it  is  a  pleasure  to  be  with  you, 
here  at  home  today,  to  discuss  what  has  emerged  £is  one  of  America's  top  two  eco- 
nomic and  social  challenges:  reform  of  our  ailing  health  care  system. 

Today  we  will  hear  of  the  problems  of  providing  and  financing  health  care  for 
Michigan's  poor  and  medically  underserved  under  the  Medicaid  program.  The  very 
fact,  Mr.  Chairman,  that  we  must  hold  hearings  on  this  subject  is  illustrative  of  a 
fundamental  problem  with  our  health  care  system:  it  is  a  two-tiered  system.  There 
is  one  system  for  those  who  can  afford  private  health  insurance,  and  there  is  an- 
other system  for  those  who  cannot.  Both  tiers  of  this  system  are  failing  miserably. 

And  we  are  here  to  talk  about  money — ^the  precious  $2  billion  every  day,  the  $84 
million  every  hour,  and  $23  thousand  per  second  we  spend  as  a  Nation  under  our 
current  system.  We  have  the  best  health  care  in  the  world,  but  the  world's  worst 
delivery  system. 

Spencing  on  both  tiers  of  our  health  care  system  is  expanding  at  an  exponential 
rate,  Mr.  Chairman,  whether  it  be  for  Medicaid  or  private  insurance.  In  1991,  the 
Nation's  spending  on  health  care  reached  $738  billion.  This  constituted:  (1)  an  in- 
crease of  10.8  percent  from  1990;  (2)  an  increase  at  a  double-digit  rate  for  4  consecu- 


tive  years;  and  (3)  an  increase  more  than  twice  as  fast  as  the  5.1  percent  growth 
rate  of  the  economy  last  year. 

Beyond  the  impact  on  families,  corporations,  health  care  providers  and  govern- 
ment that  we  see  every  day,  out  of  control  health  care  costs  are  eroding  our  ability 
to  compete  in  world  markets — not  gradually  but  rapidly.  In  1990  we  spent  12.4  per- 
cent of  our  Gross  National  Product  (GNP)  on  health  care.  In  the  same  year  our 
trading  partners  and  competitors  spent  markedly  less:  Canada  9  percent,  Japan  6.5 
percent,  Britain  6.1  percent.  If  we  do  nothing,  the  percentage  of  GNP  we  spend  on 
health  care  is  expected  to  reach  18  percent  by  the  year  2000 — nearly  $1.8  trillion. 

The  cost  of  doing  nothing  about  our  health  care  system  isn't  just  measured  in  dol- 
lars. It's  measured  in  lives  lost  and  hopes  dashed.  It's  measured  by  the  35  million 
men,  women  and  children  who  have  no  health  insurance  today.  It's  measured  in  the 
numbers  of  closed  hospitals  and  health  centers  in  our  cities  and  rural  areas.  It's 
measured  in  the  anxiety  of  the  uninsured  and  of  the  American  workers  who  strug- 
gle to  pay  insurance  premiums  and  copayments  and  avoid  changing  jobs  out  of  fear 
of  losing  their  health  insurance. 

It  is  indeed  a  two-tiered  system,  Mr.  Chairman.  If  you  can't  pay  for  health  care, 
for  the  most  part  you  are  out  of  the  system  £ind  out  of  luck. 

The  upper  tier — ^the  system  for  the  60  percent  of  Americans  who  can  afford  health 
insurance — is  a  twisted  collection  of  over  1,200  insurance  companies,  each  with  its 
own  set  of  rules  and  billing  procedures,  and  without  coordination,  uniformity,  or 
decent  cost  control.  As  one  might  expect,  the  costs  for  the  upper  tier  expand  expon- 
entially each  year:  private  insurance  costs  rose  from  $73.4  billion  in  1980  to  $216.8 
billion  in  1990.  And  as  costs  to  insurers  rise,  millions  of  Americans  each  year  fall 
from  the  upper  tier  to  the  lower,  as  working  people  are  priced  out  of  the  system  and 
insurers  "just  say  no"  to  individuals  and  businesses  who  are  considered  bad  risks. 

The  lower  tier — the  system  for  the  8  percent  of  Americans  on  Medicaid,  and  the 
35  million  uninsured,  72  percent  of  whom  are  above  the  poverty  level — has  become 
a  nightmare  for  Federal  and  local  governments  alike.  The  Federal  share  of  Medic- 
aid, the  focus  of  our  attention  today,  is  projected  to  grow  203  percent  by  1996,  to 
$105.3  billion. 

States  have  it  worse:  State  Medicaid  costs  in  the  aggregate  accounted  for  14  per- 
cent of  total  State  spending  in  1990  and  it  is  estimated  that  Medicaid  will  reach  22 
percent  of  State  spending  by  1995.  So,  charged  with  matching  the  Federal  share  of 
Medicaid,  dozens  of  States  in  budget  straitjackets,  like  Michigan,  are  forced  to 
either  cut  back  on  Medicaid  eligibility  or  attempt  any  number  of  accounting  tricks 
to  put  up  their  share. 

In  the  end,  it's  the  people  who  need  comprehensive  health  care  the  most  that  pay. 
Providing  health  care  to  the  medically  underserved,  the  disenfranchised,  and  the 
unemployed  just  doesn't  have  much  political  support.  And  so  every  year  Medicaid 
and  other  programs  for  the  underserved — like  CountyCare,  the  health  care  program 
for  Wayne  County's  underserved  who  don't  qualify  for  Medicaid — are  woefully  un- 

We  say  this  problem  last  year  when  Governor  Engler  pulled  out  his  budget  meat- 
axe  and  slashed  the  General  Assistance  program  and  funding  for  CountyCare.  Only 
after  a  storm  of  protest  from  more  principled  legislators  and  citizens  was  he  forced 
to  reinstate  funding  for  this  critical  program.  And  now  CountyCare  is  in  jeopardy 
once  again  after  Michigan's  Attorney  General  ruled  last  month  that  the  legislation 
reviving  the  program  is  unconstitutional. 

The  result  of  this  lack  of  financial  commitment  to  health  care  for  the  underserved 
results  in  trickle  down  payments  to  the  lower  tier.  Medicaid  reimbursement  rates  to 
doctors  and  hospitals  don't  cover  costs  and  amount  to  little  more  than  an  assault  on 
providers.  Reimbursements  are  known  to  be  about  55  percent  of  provider  costs.  Pre- 
dictably, inner-city  hospitals,  like  North  Detroit  General  and  Southwest  Detroit — 
the  majority  of  whose  patients  are  on  Medicare  or  Medicaid  or  who  are  uninsured — 
go  under. 

The  two  tiers  of  America's  health  care  system  are  collapsing  while  their  costs  ex- 
plode, Mr.  Chairman.  In  the  short  term,  we  can  hold  hearings  like  this  one,  scrape 
together  a  little  more  money,  or  introduce  legislation  in  a  frantic  attempt  to  plug 
the  holes.  But  the  real  answer  to  these  problems  we  will  hear  about  today — the  one 
we  must  all  fight  for — is  a  health  care  system  that  insures  all  Americans  under  the 
same  policy:  a  system  that  provides  universal,  national  health  insurance. 

The  benefits  of  national  health  insurance  here,  Mr.  Chairman,  would  be  enor- 
mous. Detroit  needs  it  most  because  we  are  hit  twice  as  hard  as  the  rest  of  the 
Nation.  Over  300,000  Detroit  residents  lack  health  insurance — that's  27  percent  of 
the  city's  population  and  twice  the  national  rate.  Detroit's  infant  mortality  rate  is 
twice  that  of  the  rest  of  the  Nation,  and  approaches  that  of  the  poorest  Third  World 


nations.  The  average  Detroit  resident  can  expect  to  live  9  years  less  than  other 
Americans.  Few  places  in  America  have  a  more  desperate  need  for  a  new  health 
system  than  Detroit. 

Mr.  Chairman,  I  am  an  advocate  of  a  single-payer  national  health  insurance  pro- 
gram based  on  the  Canadian  model,  with  modifications  to  take  account  of  the 
strengths  of  the  U.S.  system.  Basically,  the  Federal  Government  would  provide 
health  insurance  to  all  Americans,  just  as  it  provides  retirement  insurance  through 
Social  Security.  The  program  would  be  administered  by  the  50  States,  whose  govern- 
ments are  closest  to  the  people.  Fair  fees  and  budgets  would  be  negotiated  with  doc- 
tors and  hospitals  to  further  contain  costs. 

The  General  Accounting  Office,  the  non-partisan  research  arm  of  the  Congress, 
conducted  an  18-month  study  for  me  on  a  Canadian-style  single-payer  system.  The 
GAO  estimated  savings  of  $67  billion  in  1  year  under  such  a  plan  by  reducing  the 
paperwork  morass  caused  by  so  many  insurance  companies.  That  savings  is  enough 
to  insure  all  Americans  currently  without  coverage  and  eliminate  co-payments  and 
deductibles  for  everyone  else.  No  other  health  care  reform  proposal  can  make  such 
a  claim. 

Under  such  a  single-payer  plan,  Americans  would  still  have  the  freedom  to  choose 
the  doctors  of  their  choice.  Doctors  would  not  be  employed  by  the  government  any 
more  than  they  are  today.  Hospitals  would  still  be  publicly  or  privately  run.  Hospi- 
tals like  Southwest  Detroit,  North  Detroit  General  and  others  would  be  relieved  of 
the  crushing  burden  of  uncompensated  care,  as  all  Americans  would  have  their  doc- 
tor's bills  paid  for  them.  Without  the  mountains  of  paperwork  and  the  incessant 
competition  with  other  facilities,  doctors  and  hospitals  could  get  back  to  caring  for 
people  rather  than  competing  for  market  share. 

I  held  hearings  in  Detroit  last  summer  on  the  need  for  national  health  insurance 
and  remain  convinced  that  it  is  the  only  way  for  us  to  pull  ourselves  out  of  the 
health  care  crisis.  The  costs  of  doing  nothing,  as  we  will  see  today,  are  far  too  great. 

Mr.  Chairman,  I  would  also  like  to  draw  attention  to  the  problems  of  fraud  and 
abuse  in  the  Medicaid  system.  The  Committee  on  Government  Operations,  which  I 
have  the  pleaisure  of  chairing,  has  investigated  problems  that  State  Medicaid  agen- 
cies have  in  making  sure  that  insurance  companies  reimburse  the  government  for 
care  they  are  liable  for. 

Federal  law  requires  private  insurance  companies,  such  as  Blue  Cross  and  Blue 
Shield  of  Michigan,  to  pay  health  care  claims  of  Medicaid  recipients  when  the  pri- 
vate plan  covers  the  service.  In  effect,  Medicaid  is  the  payer  of  last  resort.  An  exam- 
ple of  this  kind  of  coverage  is  a  single  parent  family  on  Medicaid  where  the  children 
are  privately  insured  through  the  absent  parents  employer. 

Here  in  Michigan,  I  had  the  General  Accounting  Office,  investigate  complaints 
that  the  Michigan  Medicaid  agency — the  Medical  Services  Administration — has  en- 
countered serious  problems  in  recovering  money  owed  to  it  by  Blue  Cross  and  Blue 
Shield  of  Michigan. 

The  report  found  that  in  one  18  month  period,  from  September  1988  to  April  1990, 
Medicaid  paid  $59  million  in  claims  to  doctors  and  hospitals  which  by  law  Blue 
Cross  is  potentially  liable  for.  Only  $5  million  has  been  recovered  from  Blue  Cross.  I 
am  not  suggesting  that  Blue  Cross  is  liable  for  the  full  amount,  but  given  the 
present  poor  state  of  the  computer  interface  between  Michigan  Medicaid  and  Michi- 
gan Blue  Cross,  we  can't  tell  whether  they  owe  50  cents  on  the  dollar  or  10  cents  on 
the  dollar.  Whatever  the  amount,  when  you  consider  that  all  other  49  States  have  a 
similar  problem  it  adds  up  to  a  tidy  sum  owed  to  the  Federal  and  State  govern- 

The  GAO  blamed  all  parties  for  this  mess.  The  State  for  not  using  all  its  tools  to 
correct  the  problem;  Blue  Cross  for  establishing  legal  or  administrative  barriers  to 
postpone  or  halt  payments  to  Medicaid;  and  the  Health  Care  Financing  Administra- 
tion, the  Federal  Agency  charged  with  oversight,  which  failed  to  identify  the  prob- 
lem and  work  with  the  State  to  correct  it. 

I  am  continuing  to  closely  monitor  the  situation  here  in  Michigan  to  see  what 
progress  the  State  is  making  in  recouping  what  Blue  Cross  owes  it,  and  to  limit 
future  losses.  I  also  hope  to  work  with  your  committee,  which  has  jurisdiction  over 
reforms  to  Medicaid,  to  see  if  we  can  correct  this  problem  with  insurance  companies 
and  Medicaid  programs  across  the  country, 

I  thank  you  for  the  opportunity  to  be  here  today. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman. 

The  Chair  is  delighted  we  are  joined  by  our  good  friend  and  col- 
league from  the  State  of  Michigan,  the  Honorable  Sandy  Levin  who 
ably  represents  the  State  on  the  Committee  on  Ways  and  Means. 


All  of  us  here  at  the  table  have  worked  very  closely  with  him  on 
matters  affecting  Michigan.  A  fine  and  respected  Member  of  Con- 
gress, and  we  are  honored  that  he  is  with  us  this  morning. 

He  is  also  a  member  with  major  jurisdiction  in  the  area  of  health 
and  has  characterized  his  term  by  his  concern  over  these  issues. 
The  Chair  recognizes  the  gentleman  from  Michigan. 


Mr.  Levin.  Thank  you  very  much,  Mr.  Chairman.  I  appreciate 
the  invitation  to  let  me  join  you.  We  have  a  very  distinguished 
number  of  witnesses,  so  I  will  just  be  very  brief. 

This  hearing  is  focusing  on  Medicaid,  and  the  Energy  and  Com- 
merce Committee  under  your  leadership  has  jurisdiction  over  it. 
The  two  committees.  Energy  and  Commerce,  and  Ways  and  Means 
share  jurisdiction  over  many  other  health  matters.  And  though  I 
could  not  be  here  for  the  entire  morning,  I  did  want  to  take  advan- 
tage of  your  kind  invitation  to  listen  in  on  some  of  the  testimony 
between  the  two  committees  with  the  active  cooperation  and  in- 
volvement of  Government  Operations. 

We  have  a  big  task  ahead  of  us,  to  try  and  reform  the  health 
care  system  of  this  country,  and  Medicaid  is  an  important  piece  of 

So  again,  to  you,  Mr.  Chairman,  to  your  colleagues  and  my  col- 
leagues from  the  Republican  branch,  Mr.  Conyers,  I  am  very 
pleased  to  be  able  to  join  you  this  morning.  Thanks  again. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman. 

The  first  panel  is  composed  of  Mr.  Frank  Garrison,  President  of 
Michigan  AFL-CIO,  and  Mr.  David  Hirschland,  United  Auto  Work- 
ers, Assistant  Director,  Social  Security  Department. 

The  Chair  is  happy  to  welcome  you  to  come  forward  to  the  wit- 
ness table.  We  will  be  delighted  to  have  your  testimony. 

The  Chair  will  recognize  my  old  friend,  Mr.  Garrison,  for  such 
statement  as  he  chooses.  Welcome.  Thank  you  again.  We  are 
pleased  that  you  are  here. 


Mr.  Garrison.  My  good  friend  John,  it  is  good  to  see  you  again 
this  morning.  It  seems  like  I  see  a  lot  of  you  lately. 

Let  me  express  my  thanks  from  the  entire  labor  movement  here 
in  Michigan  for  your  timely  concern  about  the  problems  of  health 
care  in  this  country  in  general  and  in  Michigan  in  particular.  It  is 
the  kind  of  attention  to  the  problems  of  people  that  we  in  the  labor 
movement  have  come  to  expect  from  your  leadership  since  you 
have  served  in  Congress. 

The  problems  of  health  care  in  Michigan  has  become  acute,  par- 
ticularly over  the  past  year,  not  because  of  any  natural  plague  or 
contagion  that  has  swept  our  State  but  from  man-made  causes,  a 
recession  made  in  Washington  and  a  set  of  mean-spirited  budget 
cuts  in  Lansing. 


The  reckless  financial  policies  of  the  Reagan-Bush  years  have  fi- 
nally come  home  to  roost.  The  mindless  deregulations  of  our  finan- 
cial institutions,  the  encouragement  of  speculative  lending  of  de- 
positors' dollars  and  the  laxity  of  safeguarding  the  safety  and  secu- 
rity of  deposits  have  left  our  financial  institutions  crippled  in  their 
ability  to  lend  and  stimulate  economic  recovery. 

More  than  the  tripling  of  the  national  debt  in  11  years  has  crip- 
pled the  Federal  Government's  ability  to  respond.  We  have  lost  as 
many  jobs  in  this  recession  as  in  any  since  the  Great  Depression, 
and  the  end  is  not  yet  in  sight. 

Our  members  were  shocked  to  see  that  a  President  who  promised 
to  bring  a  kinder,  gentler  Nation,  last  year  twice  vetoed  bills  that 
were  passed  by  Congress  to  extend  unemployment  benefits.  And, 
thankfully,  he  saw  the  light,  and  we  did  pass  some  extension  to  the 
unemployment  benefits. 

There  has  been  one  special  feature  of  this  Bush  recession,  the 
fact  that  so  many  of  the  newly  unemployed  have  not  just  been  tem- 
porarily laid  off.  Their  jobs  have  been  eliminated.  And  this  is  true 
among  white-collar  workers  as  well  as  blue-collar  workers.  And  I 
can  report  to  you  this  morning,  Mr.  Chairman,  that  I  have  never 
seen  so  much  job  insecurity  amo^ig  those  who  still  have  their  jobs 
as  we  are  seeing  in  the  workplace  today. 

To  make  matters  worse,  just  when  our  social  safety  net  is  needed 
the  most,  the  reckless  budgetary  policies  of  Governor  Engler  have 
not  just  weakened  the  net,  they  have  torn  it  to  shreds.  Mental  hos- 
pitals have  been  closed  and  patients  dumped  into  the  community 
without  adequate  facilities.  Emergency  need  programs  established 
under  Governor  Milliken  and  Governor  Blanchard  have  been 
slashed,  and  hundreds  of  thousands  of  Federal  recipients  have  been 
cut  off,  unable  to  do  gainful  work,  let  alone  find  jobs  in  this  de- 
pressed economy. 

Let  me  mention  just  one  case,  a  51-year-old  widow.  When  her 
husband  was  alive  they  both  were  working  and  they  owned  their 
own  home.  Then  he  died,  and  she,  after  14  years,  was  working  as  a 
bus  driver,  was  forced  to  stop  working  about  2  years  ago  when  she 
passed  out  right  after  work.  She  was  rushed  to  the  hospital  and  re- 
ceived a  pacemaker  for  an  irregular  heartbeat. 

She  still  has  high  blood  pressure  and  difficulty  climbing  even 
short  flights  of  stairs.  She  lost  her  job  and  has  been  rejected  for 
several  others  because  of  her  health  conditions.  For  a  year  or  so 
she  was  receiving  $160  a  month  in  general  assistance,  barely 
enough  to  make  ends  meet.  But  when  John  Engler  came  to  office, 
it  was  abruptly  eliminated.  She  has  lost  her  Medicaid  and  her  pre- 
scription coverage  so  she  went  4  months  at  a  time  without  blood 
pressure  medicine. 

Recently,  she  spread  out  for  the  reporters  all  the  notices  of  rejec- 
tions from  the  Department  of  Social  Services  and  said,  it  is  affect- 
ing me  terribly,  mentally,  physically.  All  she  gets  now  is  $111  in 
food  stamps.  And,  while  her  doctors  recommend  a  special  diet,  she 
can't  afford  the  items  on  the  diet. 

The  results  of  these  two  convulsions  from  Washington  and  Lan- 
sing is  that,  more  than  ever,  people  from  Michigan  have  become 
aware  of  the  inadequacies  of  our  present  health  care  insurance 
system.  Those  who  are  still  working  are  more  worried  than  ever 


before  that  they  will  lose  their  employer-provided  health  insurance 
as  soon  as  they  are  laid  off. 

In  today's  world,  an  unemployment  check  will  barely  cover  the 
cost  of  a  family's  health  insurance  policy,  let  alone  pay  the  mort- 
gage or  the  rent  and  put  food  on  the  table.  Likewise,  in  Michigan, 
there  are  those  unable  to  work  who  have  all  too  often  been  forced 
to  make  impossible  choices  between  medicine  and  food. 

Mr.  Chairman,  you  and  a  few  other  farsighted  political  leaders 
have  long  been  aware  of  the  need  for  a  national  universal  health 
insurance  with  effective  means  to  check  the  spiraling  of  health 
care  costs.  I  am  here  to  report  that  working  people  in  Michigan, 
from  those  with  the  best  existing  coverage  to  those  who  have  none, 
are  ready  to  work  and  demand  such  legislation. 

Thank  you,  Mr.  Chairman. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman.  Mr.  Hirschland, 
we  welcome  to  you. 


Mr.  Hirschland.  Mr.  Chairman,  I  am  David  Hirschland.  I  am 
Assistant  Director  of  the  Social  Security  Department  of  the  Inter- 
national Union,  UAW.  I  want  to  thank  you  for  the  opportunity  to 
testify  on  behalf  of  the  1.4  million  active  and  retired  members  of 
the  UAW  and  their  families  on  the  subject  of  public  health  issues.  I 
would  like  to  summarize  my  statement. 

Mr.  DiNGELL.  Without  objection,  your  statement  will  be  inserted. 

Mr.  Hirschland.  The  crisis  in  America's  health  care  system  has 
been  well  documented.  The  problems  span  all  aspects  of  the 
system,  including  rising  health  care  costs,  lack  of  access  to  care, 
waste  and  inefficiency  in  the  system,  and  questionable  quality  of 

The  UAW  believes  nothing  short  of  total  reform  will  enable  the 
United  States  to  get  a  handle  on  these  complex  and  interrelated 
problems.  More  and  more  of  the  available  income  of  the  people  of 
this  country  is  going  to  health  care  costs. 

In  1990  the  United  States  spent  over  $660  billion  on  health  care, 
which  amounted  to  12.2  percent  of  our  Gross  National  Product.  In 
1991,  spending  increased  to  $738  billion. 

And  the  Commerce  Department  has  predicted  that  Americans 
will  spend  $817  billion  in  1992,  contributing  to  a  record  14  percent 
of  the  U.S.  Gross  National  Product.  The  skyrocketing  costs  of 
health  care  adversely  affect  the  international  competitiveness  of 
many  businesses  and  threaten  the  job  security  of  millions.  Older, 
long  established  companies  are  affected  because  they  tend  to  have 
a  higher  ratio  of  retired  workers  and  an  older  active  workforce, 
both  of  which  result  in  higher  health  care  costs. 

The  UAW  believes  employers  should  not  have  to  compete  on  the 
basis  of  their  health  care  costs.  There  should  be  a  level  playing 
field,  with  all  employers  sharing  equally  in  the  costs  of  providing  a 
basic  level  of  health  care  protection  to  Americans. 

The  problem  of  rising  health  care  costs  is  aggravated  by  cost 
shifting  between  employers,  as  well  as  the  growing  problem  of  cost 
shifting  for  public  programs,  such  as  Medicare  and  Medicaid,  to 
private  employers. 


This  cost  shifting  has  resulted  in  a  situation  where  hospitals  in- 
crease the  rates  they  charge  for  private  payers  in  order  to  offset 
any  reductions  of  public  payments  or  losses  due  to  uncompensated 

The  American  health  care  system  is  plagued  by  waste  and  ineffi- 
ciency. A  1990  study  by  the  Citizens  Fund  estimated  commercial 
health  insurance  carriers  spend  33.5  cents  for  administration,  over- 
head and  marketing  costs,  in  order  to  provide  a  dollar  of  health 
care  benefits. 

This  is  14  times  more  than  the  2.3  cents  it  costs  Medicare,  and  11 
times  more  than  it  costs  the  national  health  care  system. 

While  the  cost  of  health  care  continues  to  rise,  many  Americans 
do  not  have  access  to  adequate  health  care  services.  Over  37  mil- 
lion people  are  without  insurance,  two-thirds  of  whom  are  working 
people  and  one-third  of  whom  are  children. 

The  UAW  believes  that  Americans  should  be  entitled  to  health 
care  as  a  basic  right.  Rising  health  care  costs,  and  the  resulting  ef- 
forts by  employers  to  cut  back  on  health  insurance  coverage,  have 
been  a  major  issue  in  almost  every  set  of  UAW  negotiations  in 
recent  years. 

The  attempts  at  cutbacks  have  affected  our  ability  to  assure  cov- 
erage for  laid  off  and  retired  workers  and  their  family.  Loss  of 
health  care  benefits  for  these  workers  can  be  devastating. 

Mr.  Chairman,  the  interrelated  problems  of  soaring  health  care 
costs  and  declining  access  to  care  cry  out  for  fundamental  reform. 
UAW  is  firmly  convinced  a  Canadian  style  single  payer  social  in- 
surance program  represents  the  best  means  of  achieving  all  the 
goals  of  flat  health  care  reform. 

First,  by  guaranteeing  universal  access  to  health  care  for  all 
Americans,  this  approach  would  serve  to  improve  the  health  status 
of  Americans.  Access  to  health  care  would  be  a  basic  right,  irre- 
spective of  health  status,  employment  or  income. 

Second,  by  establishing  a  single  government  payer,  this  approach 
would  achieve  substantial  administrative  savings.  The  waste  and 
inefficiency  associated  with  the  existing  multitude  of  private  insur- 
ance carriers  could  be  avoided. 

Third,  by  establishing  a  uniform  all  payers  system  for  reimburs- 
ing health  care  for  providers,  this  approach  would  eliminate  cost 
shifting  between  public  and  private  payers.  Private  employers 
would  no  longer  have  to  indirectly  subsidize  our  public  health  care 

Fourth,  and  perhaps  most  importantly,  by  establishing  a  manda- 
tory, enforceable  budgeting  process,  this  type  of  approach  would 
guarantee  that  health  care  spending  would  be  contained  within 
certain  limits. 

Fifth,  a  single  payer  approach  makes  significant  strides  towards 
improving  the  quality  of  health  care  in  this  country. 

In  particular,  under  a  single  payer  system,  outcomes  in  research 
findings  can  more  easily  be  fed  back  into  the  system  in  a  broad- 
based  effort  towards  continuous  quality  improvement. 

Sixth,  the  single  payer  approach  represents  the  best  means  of  as- 
suring that  the  costs  of  providing  health  care  are  distributed  in  an 
equitable  and  progressive  manner.  This  type  of  approach  would 


eliminate  cost  shifting  between  employers,  as  well  as  the  shifting  of 
uncompensated  care  costs. 

A  level  playing  field  would  be  established  between  all  employers, 
regardless  of  health  status,  age,  or  composition  of  their  workforce. 
And  progressive  taxes  on  corporations  and  wealthy  individuals  can 
easily  be  used  to  help  finance  this  type  of  program. 

Mr.  Chairman,  the  UAW  appreciates  the  opportunity  to  express 
our  views  on  the  public  health  of  this  country. 

We  commend  your  efforts  and  contributions.  We  look  forward  to 
working  with  you  and  other  members  of  this  committee  as  you 
struggle  with  these  issues.  Thank  you  very  much. 

[Testimony  resumes  on  p.  27.] 

[The  prepared  statement  of  Mr.  Hirschland  follows:] 




Mr.  Chairman,  I  am  David  Hirschland,  Assistant  Director  of  the 
International  Union,  UAW,  Social  Security  Department.  I  want  to  thank  you  for 
the  opportunity  to  testify  on  behalf  of  1.4  million  active  and  retired  members  of 
the  UAW  and  their  families  on  the  subject  of  public  health  issues. 

The  crisis  in  America's  health  care  system  has  been  well  documented:  costs 
are  out  of  control,  access  to  care  is  woefully  lacking,  the  quality  of  care  received  is 
questionable,  and  the  economy  of  the  country  is  being  adversely  affected.  The 
UAW  believes  that  nothing  short  of  total  reform  will  remotely  begin  to  provide  an 
effective  solution  to  these  complex  and  interrelated  problems. 

The  cost  of  medical  care,  which  is  increasing  at  a  rate  faster  than  the  rate 
for  other  goods  and  services  each  year,  is  causing  alarm  for  every  segment  of  the  - 
population.     The  Medical  Care  component  of  the  Consumer  Price  Index 
consistently  increases  at  a  rate  faster  than  inflation.  From  May  1990  to  May  1991, 
the  MCPI  increased  by  9.0  percent,  while  the  increase  in  the  CPI  was  5.0  percent. 

As  the  country  continues  to  experience  these  out  of  control  cost  increases, 
and  the  state  of  the  economy  worsens,  more  and  more  of  the  available  income  of 
the  people  of  this  country  is  going  toward  health  care  costs.  In  1990,  the  United 
States  spent  over  $666  billion  dollars  on  health  care,  which  amounted  to  12.2 
percent  of  our  gross  national  product.  In  1991,  spending  increased  to  $738  billion. 
The  Commerce  Department  has  predicted  that  Americans  will  spend  $817  billion 
in  1992,  contributing  to  a  record  14  percent  of  the  U.S.  gross  national  product. 
The  estimated  health  care  bill  for  1992  will  be  nearly  double  that  of  1987,  when 



the  total  was  $494  billion.  Without  immediate  and  effective  controls,  these 
numbers  will  continue  to  soar. 

The  skyrocketing  costs  of  health  care  adversely  affect  the  international 
competitiveness  of  many  businesses,  and  threaten  the  job  security  of  millions  of 
Americans.  In  Canada,  for  example,  employer  health  care  costs  are  approximately 
one-half  those  in  the  United  States;  in  Japan,  about  one-third.  That  kind  of 
disparity  is  seen  as  an  incentive  by  multinational  corporations  to  transfer  more 
production  and  plant  investments  outside  this  country. 

Escalating  health  care  costs  also  unfairly  affect  the  competitiveness  of 
older,  long  established  companies  compared  to  newer  employers  within  this 
country.  There  are  two  major  reasons  for  this.  First,  older  companies  tend  to  have 
a  higher  ratio  of  retired  to  active  workers  than  newer  competitors.  Thus,  the  older 
companies  must  bear  the  additional  cost  of  paying  for  health  insurance  coverage 
for  their  retirees.  Second,  the  average  age  of  the  active  work  force  often  is  higher 
in  older  companies  than  in  newer  employers.  Since  health  care  costs  tend  to  rise 
with  age,  this  also  places  an  additional  burden  on  older  companies.  It  is  extremely 
important  that  any  reform  to  the  health  care  system  address  the  disparities  related 
to  older  and  retired  workers. 

The  UAW  believes  that  employers  should  not  have  to  compete  on  the  basis 
of  their  health  care  costs.  There  should  be  a  "level  playing  field,"  with  all 
employers  sharing  equally  in  the  costs  of  providing  a  basic  level  of  health  care 
protection  to  all  Americans.  All  employers  currentiy  pay  the  same  contribution 
(i.e.,  the  same  percentage  of  wages)  to  Social  Security  in  order  to  provide  a  basic 
level  of  retirement  and  disability  income  to  workers.  The  same  principle  should 



be  applied  to  the  financing  of  health  insurance  coverage  for  workers  and  their 

The  problem  of  rising  health  care  costs  is  aggravated  by  cost-shifting 
between  employers.  Too  often,  employers  that  provide  health  insurance  for  their 
workers  end  up  subsidizing  those  that  do  not,  thereby  increasing  costs  even  more. 
We  estimate  that  15  percent  of  the  health  care  costs  of  General  Motors,  Ford  and 
Chrysler  are  attributable  to  the  health  care  of  spouses  who  are  employed 
elsewhere,  but  are  not  covered  by  their  own  employer  for  health  insurance.  This  is 
on  top  of  the  increases  borne  by  the  domestic  auto  companies,  like  other  payers, 
due  to  the  shifting  of  uncompensated  care  costs  by  health  care  providers. 

In  addition  to  cost  shifting  between  employers,  we  are  also  facing  a 
growing  problem  of  cost  shifting  from  public  programs,  such  as  Medicare  and 
Medicaid,  to  private  employers.  Public  health  programs  have  placed  limits  on 
their  per  case  costs  through  the  adoption  of  DRGs  for  reimbursing  hospitals. 
Private  payers  have  struggled  with  the  resulting  cost  shift  pressures  with  only 
limited  success.  This  has  led  to  a  situation  where,  whenever  possible,  hospitals 
increase  the  rates  which  they  charge  to  private  payers  in  order  to  offset  any 
reductions  in  public  payments.  The  net  result  is  that  private  payers  are  paying 
higher  rates  to  subsidize  the  public  programs. 

The  waste  and  inefficiency  associated  with  the  existing  "multi-payer" 
system  also  contributes  to  the  constant  escalation  of  health  care  costs.  A  1990 
study  by  the  Citizens  Fund  estimated  that  commercial  health  insurance  carriers 
spend  33.5  cents  for  administration,  overhead  and  marketing  costs  in  order  to 
provide  a  dollar  of  health  care  benefits.  This  is  14  times  more  than  it  costs 



Medicare  (2.3  cents)  and  1 1  times  more  than  it  costs  the  Canadian  national  health 
care  system  (3  cents).  Moreover,  between  1981  and  1988,  administrative, 
overhead  and  marketing  costs  of  commercial  insurance  companies  increased  by  93 
percent,  more  than  the  increase  in  premiums  sold  or  benefits  paid. 

While  the  costs  of  health  care  continue  to  rise,  millions  of  Americans  do  not 
have  access  to  adequate  health  care  services.  The  UAW  believes  that  all 
Americans  should  be  entitied  to  health  care  as  a  basic  right,  regardless  of  their 
employment  or  health  status,  age,  income,  or  place  of  residence. 

The  evidence  of  the  declining  access  to  health  care  is  inescapable.  Over  37 
million  people  are  without  insurance,  two-thirds  of  whom  are  working  people,  and 
one-third  of  whom  are  children.  Nearly  60  million  people  are  without  insurance 
for  at  least  part  of  the  year.  Unfortunately,  these  numbers  are  not  decreasing  as  the 
amounts  spent  on  health  care  continue  to  rise.  In  fact,  the  opposite  is  true.  As 
health  care  costs  rise,  coverage  declines,  both  in  terms  of  the  number  of  Americans 
eligible  for  health  benefits,  as  well  as  the  scope  of  benefits  provided  to  those  who 
remain  covered. 

Medicaid,  the  federal- state  program  developed  for  insuring  the  poor,  has 
failed  to  cover  those  most  needy.  Today,  Medicaid  covers  only  40  percent  of 
those  living  below  the  federal  poverty  line.  Widely  different  eligibility  standards 
and  Medicaid  benefit  levels  between  states  undermine  the  program,  as 
beneficiaries,  particularly  the  working  poor,  suffer  fi*om  uneven  quality  and 
access,  constantly  having  to  face  the  question  of  whether  one  is  "in"  or  "out"  of  the 
system.  Due  to  inadequate  reimbursement  levels,  many  physicians  refuse  to 
accept  Medicaid  beneficiaries,  forcing  them  to  go  to  overburdened  public  health 



clinics  or  hospitals.  Paradoxically,  because  of  the  low  levels  of  Medicaid 
reimbursement,  many  of  these  institutions  are  in  dire  financial  straights  or  have 
already  closed  their  doors,  further  reducing  access  to  care.  > 

For  many  years,  insurance  companies  and  the  medical  profession  assured 
the  American  public  that  voluntary  health  insurance  could  accomplish  the  task  of 
providing  health  care  to  the  citizens  of  this  country.  Indeed,  until  about  1980, 
employer-sponsored  health  insurance  covered  an  increasing  number  of  Americans 
with  an  expanding  range  of  benefits.  From  the  early  coverage  for  hospitalization 
and  medical-surgical  benefits,  protection  grew  to  include  many  additional  services, 
such  as  mental  health  and  dental  care,  as  well  as  preventive  health  strategies. 

By  1980,  however,  it  became  evident  that  a  voluntary,  employer-based 
system  could  not  handle  the  job  on  its  own.  For  the  first  time  since  1940,  the 
number  of  Americans  with  health  insurance  protection  began  to  fall.  Looking  for 
ways  to  reduce  health  care  costs,  many  employers  began  to  restrict  coverage  for 
their  employees.  They  resorted  to  a  nearly  endless  array  of  cost  cutting  techniques 
such  as:  reducing  or  eliminating  prescription  drugs,  dental,  vision,  or  mental 
health  benefits;  adding  or  increasing  deductibles  and/or  copayments  for  basic 
health  insurance  and/or  major  medical  benefits;  introducing  or  increasing  periodic 
worker  contributions  for  health  insurance,  especially  with  respect  to  coverage  for  a 
spouse  and  dependent  children;  and  reducing  or  discontinuing  retiree/dependent 
health  care  benefits  before  age  65  and  Medicare  complementary  coverage  after  age 
65.  Some  employers  even  discontinued  coverage  altogether.  As  a  result,  costs 
began  to  shift  to  other  employers  and  to  households.  Employers  who  continued  to 
provide  coverage  suffered  15  to  20  percent  increases  per  year  in  their  health  care 



The  UAW  is  justifiably  proud  of  it  success  in  negotiating  health  insurance 
benefits  for  our  members  and  their  families.  But  although  most  of  our  contracts 
provide  for  excellent  health  insurance  coverage,  we  still  face  serious  problems  in 
assuring  continued  access  to  adequate  health  care.  I  can  tell  you  that  health  care 
costs,  and  the  resulting  efforts  by  employers  to  cut  back  on  health  insurance 
coverage,  have  been  a  major  issue  in  almost  every  set  of  UAW  negotiations  in 
recent  years.  And  this  problem  only  promises  to  get  worse. 

Even  where  we  have  been  successful  in  resisting  employer  demands  for 
cutbacks  in  health  insurance  coverage,  we  have  had  to  devote  an  increasing 
portion  of  the  collective  bargaining  "pie"  to  maintaining  our  health  insurance 
benefits.  This  means  that  less  money  is  available  for  wages  and  other  benefits. 

The  UAW  has  also  encountered  significant  problems  in  assuring  coverage 
for  laid  off  workers.  UAW  collective  bargaining  agreements  with  the  major 
automobile,  aerospace  and  agricultural  implement  companies  provide  for 
continuation  of  health  insurance  coverage  for  a  significant  period  of  time  after 
workers  are  laid  off.  But  due  to  the  lengthy  nature  of  the  layoffs  in  these 
industries,  many  of  our  members  have  still  lost  their  health  insurance  coverage. 
Furthermore,  many  UAW  contracts  ~  particularly  those  covering  workers 
employed  in  smaller  parts  or  other  non-manufacturing  companies  do  not  provide 
for  any  extended  health  insurance  coverage.  Thousands  of  UAW  members  have 
lost  their  health  insurance  benefits  shortly  after  being  laid  off  from  these 



These  workers  literally  have  nowhere  to  turn.  They  usually  cannot  qualify 
for  Medicaid.  But  having  lost  their  jobs,  they  cannot  afford  the  exorbitant  costs 
associated  with  maintaining  individual  health  insurance  policies.  The  COBRA 
health  insurance  continuation  requirements  provide  little  relief,  because  most  laid 
off  workers  cannot  even  afford  the  cost  of  the  group  rates  available  under 

Laid  off  workers  are  not  the  only  group  who  have  experienced  a  threat  to 
their  health  security.  In  recent  years  employers  have  increasingly  attempted  to 
reduce  or  to  completely  cancel  health  insurance  coverage  for  retired  workers  and 
their  families.  This  has  been  exacerbated  by  several  factors,  including  the  changes 
in  accounting  rules  for  post-retirement  health  insurance  benefits  which  have  been 
promulgated  by  the  Financial  Accounting  Standards  Board  (FASB),  as  well  as  the 
competitive  pressures  faced  by  older  manufacturing  companies  with  higher  ratios 
of  retired  to  active  employees. 

The  UAW  has  consistently  contested  employer  attempts  to  cjut  back  retiree 
health  insurance  benefits  at  the  bargaining  table.  And  since  1980,  the  UAW  has 
been  involved  in  numerous  lawsuits  seeking  to  prevent  reduction  or  cancellation  of 
health  insurance  coverage  for  thousands  of  retired  members  and  their  families. 
Many  of  these  cases  have  involved  plant  closings  or  bankruptcies. 

Where  employers  have  been  successful  in  reducing  or  eliminating  retiree 
health  insurance  benefits,  the  results  have  been  devastating  for  the  retirees.  This  is 
particularly  true  for  those  retirees  and  their  spouses  and  dependents  who  are  not 
yet  eligible  for  Medicare  and,  hence,  are  left  without  any  health  insurance 
protection  whatsoever.   Many  retirees  cannot  replace  the  lost  health  insurance 



benefits.  They  are  considered  "uninsurable"  by  private  insurance  companies 
because  of  their  age  or  physical  condition.  And  even  where  the  retirees  are  able  to 
obtain  new  coverage,  the  cost  of  individual  health  insurance  policies  is  usually 

Cutbacks  in  retiree  health  insurance  benefits  are  particularly  cruel  because 
retirement  decisions  are  often  predicated,  in  part,  on  the  promise  of  continued 
health  insurance  coverage  for  the  duration  of  the  retirees'  lives.  Thus,  the  cutbacks 
undermine  the  legitimate  expectations  of  the  retirees.  Usually  it  is  too  late  for  the 
retirees  to  recoup  this  type  of  loss.  They  are  too  old  to  get  a  new  job  or  start  a  new 
career.  They  are  stuck  with  their  hopes  dashed,  their  standard  of  living  during 
retirement  drastically  diminished  by  the  cutbacks  in  their  health  benefits. 

The  sad  truth  is  that  the  various  attempts  to  cut  back  on  coverage  have  done 
nothing  to  contain  the  increases  in  health  care  costs.  They  have  only  served  to 
shift  the  burden  of  health  care  costs  to  employees.  Meanwhile,  the  underlying 
causes  of  health  care  inflation  ~  a  fee  for  service  system  for  reimbursing  health 
care  providers  and  provider-driven  over  utilization  of  services  ~  continue  to 
plague  us. 

The  Bush  Administration,  rather  than  dealing  effectively  with  the 
inadequacies  of  the  existing  health  care  non-system,  appears  to  be  intent  on 
pursuing  the  fanciful  "solutions"  cherished  by  the  Reagan  Administration.  These 
"solutions"  include  taxation  of  benefits,  means  testing,  caps  on  government 
spending  for  existing  programs,  managed  care  for  Medicaid  recipients,  and 
encouraging  IRA  withdrawals  to  pay  for  current  health  care  costs.  Relying 
mistakenly  on  cost-shifting  to  reduce  demand,  these  proposals  would  only 



aggravate  existing  problems  and  further  reduce  access  to  health  services.  The 
UAW  believes  that  curing  the  problems  of  the  system  will  not  happen  merely  by 
revisiting  pious  old  prescriptions  or  invoking  an  imagined  "competitive,  free 
market"  for  health  care. 

The  UAW  has  represented  workers  in  Canada  for  many  years  and  has  come 
to  see  the  many  advantages  of  their  national  health  care  program.  The  Canadian 
system,  which  is  based  on  a  federal-provincial  partnership,  provides 
comprehensive  health  insurance  coverage  to  all  citizens  in  a  cost  effective  manner. 

The  UAW  is  firmly  convinced  that  a  Canadian  style  single  payer,  social 
insurance  program  represents  the  best  means  of  achieving  all  the  goals  of  national 
health  care  reform. 

First,  by  guaranteeing  universal  access  to  health  care  for  all  Americans,  this 
approach  would  serve  to  improve  the  health  status  of  Americans.  Universal  access 
to  a  basic  package  of  health  insurance  benefits  would  assure  that  all  citizens  have 
access  to  adequate  health  care  services.  Individuals  would  no  longer  have  to  fear 
that  they  may  lose  their  health  care  simply  because  they  are  laid  off,  change  jobs, 
or  their  employer  goes  out  of  business.  Access  to  health  care  would  be  a  basic 
right,  irrespective  of  health  status,  employment  or  income. 

Second,  by  establishing  a  single  government  payer,  this  approach  would 
achieve  substantial  administrative  savings.  The  waste  and  efficiency  associated 
with  the  existing  multitude  of  private  insurance  carriers  could  be  avoided. 
Estimates  of  these  savings  range  from  30  to  100  billion  dollars.  The  General 
Accounting  Office  recently  issued  a  report  which  estimated  that  a  Canadian  style 



single  payer  system  would  save  about  67  billion  dollars  ~  enough  to  pay  for  the 
cost  of  extending  health  insurance  coverage  to  the  37  million  uninsured. 

Third,  by  establishing  a  uniform  all  payers  system  for  reimbursing  health 
care  providers,  this  approach  would  eliminate  cost  shifting  between  public  and 
private  payers.  Private  employers  would  no  longer  have  to  indirectiy  subsidize  our 
public  health  care  programs. 

Fourth,  and  perhaps  most  importantly,  by  establishing  a  mandatory, 
enforceable  budgeting  process,  this  type  of  approach  would  guarantee  that  health 
care  spending  would  be  contained  within  certain  limits.  The  budgeting  process 
would  involve  all  of  the  players  ~  providers,  consumers,  and  the  government  ~  in 
determining  what  the  reimbursement  rates  should  be  for  various  types  of  services 
and  what  the  aggregate  level  of  expenditures  should  be.  All  parties  would  then  be 
required  to  live  within  the  agreed  upon  budgets.  Our  nation  ateady  utilizes  a 
budgeting  progress  to  determine  how  we  allocate  our  resources  for  national 
defense,  infrastructure,  and  every  other  social  good  or  service.  It  is  time  we 
adopted  the  same  approach  with  respect  to  the  delivery  of  health  care  services. 

So-called  voluntary  goals  or  targets  are  no  substitute  for  mandatory, 
enforceable  budgets.  Unless  all  parties  are  required  to  live  within  the  agreed  upon 
budgets,  we  will  never  achieve  the  discipline  needed  to  contain  rising  costs. 

The  UAW  also  believes  that  the  budgeting  process  should  apply  to  capital 
expenditures,  as  well  as  payments  to  physicians  and  hospitals.  Capital  budgeting 
should  encompass  expenditures  for  expensive  new  technology,  in  addition  to 
investments  in  new  buildings.  Only  through  this  type  of  mechanism  can  we  hope 



to  eliminate  excess  capacity  and  over-reliance  on  state-of-the-art  technology,  and 
begin  to  establish  priorities  for  the  allocation  of  our  health  care  resources. 

We  also  believe  that  any  budgeting  process  should  retain  incentives  for  the 
development  of  managed  care  delivery  systems.  It  is  important  that  we  continue  to 
build  on  our  positive  experiences  with  managed  care  and  encourage  the  adoption 
of  preventative  and  holistic  approaches  to  medical  care. 

Fifth,  a  single  payer  approach  can  make  significant  strides  towards 
improving  the  quality  of  health  care  in  this  country.  In  particular,  under  a  single 
payer  system,  outcomes  research  findings  can  more  easily  be  fed  back  into  the 
system  in  a  broad-based  effort  towards  continuous  quality  improvement.  This,  in 
turn,  can  help  reduce  costs  by  eliminating  much  of  the  unnecessary  and 
inappropriate  medical  treatments  which  are  currently  being  provided  to  patients. 
Throughout  the  reform  process,  improving  the  quality  of  care  that  Americans 
receive  must  remain  a  top  priority.  As  the  twin  crises  of  runaway  inflation  and 
lack  of  access  to  health  care  in  the  health  care  system  continue  to  worsen,  the 
quality  of  care  received  by  millions  of  Americans  remains  suspect. 

Recent  studies  have  shown  that  ten  to  thirty  percent  of  selected  medical 
procedures  are  performed  inappropriately  or  unnecessarily.  And  gross  indications 
of  health  status,  such  as  infant  mortality  and  life  expectancy,  indicate  that  the 
quality  of  health  care  is  lower  in  the  United  States  than  in  many  other 
industrialized  countries. 

The  UAW  believes  that  outcomes  research  findings  are  critical  to  correcting 
these  problems.    The  key  to  improving  and  ensuring  quality  of  care  is  the 


collection  and  study  of  data  for  the  purpose  of  determining  optimum  treatments  for 
optimum  outcomes.  Data  analysis  should  take  place  at  the  national  level,  to 
promote  a  further  understanding  of  issues  such  as  regional  practice  patterns  and 
the  steps  toward  elimination  of  unnecessary  and  harmful  treatments  which  are 
currendy  being  provided  to  patients. 

Sixth,  a  single  payer  approach  represents  the  best  means  of  assuring  that  the 
costs  of  providing  health  care  are  distributed  in  an  equitable  and  progressive 
manner.  This  type  of  approach  would  eliminate  cost  shifting  between  employers, 
as  well  as  the  shifting  of  uncompensated  care  costs.  A  "level  playing  field"  would 
be  established  between  all  employers,  regardless  of  the  health  status,  age,  or 
composition  of  their  work  force.  And  progressive  taxes  on  corporations  and 
wealthy  individuals  can  easily  be  used  to  help  finance  this  type  of  program. 

Mr.  Chairman,  the  health  care  system  in  the  United  States  must  be 
fundamentally  reformed.  Every  industrialized  nation,  with  the  exception  of  the 
United  States  and  South  Africa,  has  some  form  of  a  universal,  national  health 
security  program.  This  is  not  a  goal  attainable  only  through  the  sacrifices  of  our 
personal  freedoms  and  liberties.  When  the  ideological  smoke  screens  are  stripped 
away,  we  know  that  individuals  in  Canada,  Great  Britain,  Sweden,  West  Germany, 
Italy,  France,  and  other  free  societies  are  guaranteed  basic  health  care  protection 
by  law.  It  is  time  for  the  United  States  to  join  the  rest  of  the  world  in  assuring  this 
basic  protection  to  all  Americans. 

Again,  Mr.  Chairman,  the  UAW  commends  you  for  your  leadership  in  tiie 
struggle  for  a  fair  and  equitable  health  care  system.  We  appreciate  this 
opportunity  to  express  our  views  on  this  critical  subject  and  look  forward  to 
working  with  you  and  the  other  members  of  this  Committee  as  you  struggle  with 

these  difficult  issues.  Thank  you. 



Mr.  DiNGELL.  Mr.  Hirschland  and  Garrison,  the  committee 
thanks  you  for  your  very  valuable  help  and  your  statements  in  con- 
sideration of  the  matters  we  have  before  us. 

The  Chair  will  recognize  first  my  good  friend  from  Colorado,  Mr. 
Schaefer,  who  has  come  a  long  way  at  substantial  inconvenience  to 
himself  to  be  with  us  here  today. 

Mr.  Schaefer.  I  again  thank  the  Chair,  and  am  glad  to  be  sur- 
rounded by  such  able  members  of  the  Michigan  Delegation  today.  I 
say  that  because  in  the  State  of  Colorado,  some  4  years  ago,  we 
were  faced  with  tremendous  unemployment  problems,  industry 
losses,  and  a  lot  of  the  same  industrial  situations  you  are  in  today. 
We  had  these  problems.  We  are  slowly  trying  to  come  back,  but  we 
want  to  try  to  make  sure  the  same  not  happen  in  the  other  States, 
if  at  all  possible. 

Last  spring,  the  chairman  led  a  delegation  to  Detroit  of  which  I 
was  a  part — and  I  thank  you  for  the  great  lunch  we  had — and  it 
was  very  informative. 

I  would  like  to  ask  this  question:  Health  care  benefits  have 
become  an  increasing  part  of  collective  bargaining.  Are  we  getting 
increased  wages  or  additional  health  care  benefits? 

Mr.  Garrison.  Let  me  try  first.  I  am  headed  for  your  great  State 
this  morning  when  I  leave  here. 

Mr.  Schaefer.  Spend  a  lot  of  money. 

Mr.  Garrison.  Going  out  and  watch  one  of  the  next  Presidents  of 
the  United  States-to-be.  It  is  becoming  one  of  the  major  issues  in 
collective  bargaining  for  every  union.  When  they  go  to  the  bargain- 
ing table,  health  care  sits  front  and  center.  The  last  round  of  nego- 
tiations with  communication  members,  it  was  the  health  care  that 
created  the  strike  they  had  at  Bell  Telephone.  Everywhere  we  look, 
it  is  health  care. 

Mr.  Hirschland.  I  don't  see  people  negotiating  to  improve  health 
care  benefits.  I  haven't  seen  that  in  the  last  13  years.  What  I  see  is 
people  trying  to  hold  on  to  the  health  care  benefits  they  have  and 
if  the  cost  of  health  care  benefits  becomes  an  issue,  to  the  extent 
changes  are  made,  they  are  in  the  other  direction. 

Mr.  Schaefer.  In  other  words,  you  are  seeing  more  of  a  bargain- 
ing point  to  get  additional  or  to  keep  your  health  care  rather  than 
the  wage  issue. 

Mr.  Hirschland.  Right.  Really,  people  would  like  to  improve 
their  benefits.  That  is  not  the  direction  things  have  gone. 

Mr.  Schaefer.  Now,  you  both  mentioned  national  health  care.  I 
have  had  some  problems  with  that  in  the  past  because  I  feel  that 
there  is  a  possibility  to  deteriorate  the  quality  of  health  care  if  we 
go  in  that  direction.  Would  you  care  to  comment  on  that?  Is  that  a 

Mr.  Garrison.  We  are  the  only  industrial  nation  in  the  world 
except  South  Africa  that  doesn't  have  some  form  of  national  health 
insurance.  Our  competitors,  our  major  competitors  on  trade,  have 
some  form  of  national  health  insurance. 

You  know,  these  countries,  they  are  not  complaining  in  Canada 
about  quality  of  care.  They  are  not  complaining  in  Germany  or 
Japan.  All  over  the  world,  they  have  adequate  health  care  coverage 
for  the  national  system.  I  don't  see  why  we  can't  have  one  in  this 


Mr.  HiRSCHLAND.  Let  me  add  to  that.  If  you  look  at  traditional 
measures,  very  gross  measures  of  quality,  two  things  you  might 
look  at  are  infant  mortality  and  life  expectancy.  Many  countries  of 
the  world  have  higher  levels  than  we  do. 

Second  thing,  you  talk  about  quality  of  care,  it  is  very  hard  to 
measure  quality  of  care,  because  we  have  so  many  different  provid- 
ers. One  of  the  things  a  national  system  will  allow  us  to  do  is  have 
a  uniform  way  of  looking  at  quality. 

Medicare  has  recently  taken  some  important  steps  to  doing  that, 
but  Medicare  doesn't  represent  all  the  health  care  in  this  country; 
far  from  it. 

Mr.  ScHAEFER.  I  know  we  have  tremendous  problems.  We  in  Con- 
gress passed  a  catastrophic  bill  sometime  back,  and  turned  around 
and  repealed  it.  The  Members  of  Congress  are  branded  with  that 
and  they  don't  want  to  jump  into  a  new  program  too  fast  without 
making  sure  it  is  going  to  work.  That  is  why  I  ask  these  questions, 
because  something  we  don't  want  to  see  happen  is  less  quality  in 

Mr.  HiRSCHLAND.  In  our  current  system,  we  have  people  who 
don't  have  care  and,  clearly,  their  quality  of  care  is  virtually  non- 
existent. We  have  people  having  a  very  difficult  time  getting  access 
to  care.  We  have  problems  because  we  are  reimbursing  inadequate- 
ly; providers  aren't  providing  everything  they  should. 

We  have  a  lot  of  quality  of  care  problems  in  our  current  system. 
If  we  have  uniform  sets  of  benefits  across  the  Nation,  where  we 
didn't  have  different  tiers,  that  would  be  a  good  step  towards 
making  sure  we  improved  our  quality  of  care. 

Mr.  Garrison.  Mr.  Schaefer,  rushing  into  it?  My  God,  the  chair- 
man's dad  introduced  a  bill  when  Franklin  Roosevelt  was  Presi- 
dent. I  don't  know  that  we  are  rushing  into  it. 

Mr.  Schaefer.  I  understand  that  and  I  understand  it  has  been 
around  for  a  long,  long  time.  All  I  am  saying  to  you  is  that  a  lot  of 
members,  because  of  the  catastrophic  health  care  problem,  are  a 
little  bit  worried  about  trying  to  come  out  with  a  novel  approach 
that  does  not  work. 

That  is  all  I  am  saying.  It  is  one  of  those  things,  almost  like 
banking  and  the  S&L's.  We  are  afraid  to  go  into  banking  reform 
unless  we  know  exactly  what  is  going  to  happen.  We  don't  want 
this  to  repeat  itself. 

One  other  question,  Mr.  Chairman.  What  kind  of  choices  are 
being  made  by  the  workers?  Must  they  sacrifice  protection  for 
themselves,  long  term,  for  the  health  care?  If  we  were  going  to  na- 
tionalized care,  would  we  also  include  long-term  health  care,  as 
well  as  dealing  with  the  immediate  problems  of  your  workers 

Mr.  Garrison.  Well,  that  is  why  the  labor  movement  in  this 
country  supports  a  comprehensive,  you  know,  program  that  will 
cover  everybody,  you  know,  from  cradle  to  grave. 

Mr.  Schaefer.  Costs  are  tremendous. 

Mr.  HiRSCHLAND.  That  is  certainly  true.  One  of  the  problems  we 
have  in  costs  right  now,  in  addition  to  having  administrative  sys- 
tems which  are  extremely  expensive  and  not  productive,  we  can't 
budget  health  care  costs  right  now.  If  we  had  a  national  system,  we 


could  talk  about  what  we  are  going  to  spend  on  national  health 

Mr.  ScHAEFER.  I  appreciate  the  gentlemen's  answers.  These  are 
questions  we  are  concerned  with. 

Mr.  DiNGELL.  The  Chair  recognizes  now  the  gentleman  from 
Michigan,  Mr.  Upton. 

Mr.  Upton.  Thank  you,  Mr.  Chairman.  How  would  you  charac- 
terize the  quality  of  health  care  under  the  plans  you  have  negotiat- 

Mr.  Garrison.  Again,  each  union  has  different  coverage,  depend- 
ing on  their  contract.  And  even  though  the  UAW  is  mostly  a  home 
union,  but  even  within  that  union,  it  depends  on  which  company 
you  are  negotiating  with.  It  is  not  a  uniform  health  care  coverage 
throughout  the  labor  union  or  any  one  union.  In  the  auto  industry, 
it  is  probably  one  of  the  best  packages  you  can  get. 

Mr.  Upton.  I  want  to  hear  from  you.  What  specific  steps  have 
you  taken  to  control  the  rising  costs  of  health  care?  Do  you  have 
special  programs  for  smoking;  or  weight  loss?  How  do  you  deal 
with  preventive  care? 

Mr.  Garrison.  Let  me,  Mr.  Upton,  reply.  For  instance,  at  Kel- 
logg, the  grain  millers  union  in  Battle  Creek — that  is  not  in  your 
District,  but  there  they  have  negotiated  the  kind  of  things  you  are 
talking  about.  They  have  a  health  care  system  there.  They  have 
got  a  wellness  center  on  site  for  the  workers. 

Mr.  Upton.  They  have  Raisin  Bran. 

Mr.  Garrison.  They  have  Raisin  Bran.  But  again,  there  was  ne- 
gotiating between  the  union  and  management  to  have  a  wellness 
program  to  cut  down  on  health  care  dollars,  and  it  seems  they  have 

Mr.  Upton.  Are  you  seeing  that  type  of  program  pretty  much 
across  the  board? 

Mr.  Garrison.  I  think  you  are  seeing  it  more  and  more  dis- 
cussed. I  am  also  a  board  member  of  Blu3  Cross-Blue  Shield. 

Mr.  HiRSCHLAND.  I  think  there  is  a  lot  of  use  now  of  wellness  pro- 
grams. When  you  are  describing  problems  where  you  try  to  keep 
people  well  by  improving  diet,  getting  blood  pressure  under  control, 
weight  loss,  smoking.  We  see  that  in  the  employment  system  now 
and  the  programs  have  a  lot  of  promise. 

The  impact  of  those  tends  to  be  long-term,  but  we  have  certainly 
encouraged  them.  We  have  a  lot  of  those  programs.  They  tend  to 
work  best  when  they  are  developed  locally.  We  have  seen  it  at 
Chrysler,  Ford,  and  General  Motors.  A  lot  of  the  smaller  units  now. 

That  has  really  been  going  on  since  197 — late  1970's.  At  one 
time,  companies  really  weren't  very  interested  in  that.  Only  more 
recently  have  they  found  that  is  a  promising  area. 

Mr.  Upton.  Mr.  Hirschland,  the  devastating  news  that  came  out 
this  week  with  regard  to  closing  plants  in  Flint,  Willow  Run,  a 
number  of  others,  what  is  going  to  happen  under  contracts  you  all 
have  with  those  folks  that  will  be  laid  off?  What  type  of  safety  net 
may  be  in  those  programs — what  specifically  may  be  happening  to 
those  families? 

Mr.  Hirschland.  I  am  not  familiar  enough  with  the  General 
Motors  contract  to  tell  you  what  those  people  might  do,  because 
they  have  rights  to  hopefully  move  to  some  other  plants  and  things 

58-688  0-92-2 


like  that.  We  do  have  extended  health  care  coverage  for  lay  off, 
particularly  for  longer  service  employees. 

Mr.  Upton.  Do  you  know  if  those  families  will  be  eligible  for 

Mr.  HiRSCHLAND.  You  probably  know  the  rules  better  than  I  do, 
but  there  is  an  income  test  and  means  test.  Those  people  will  not 
initially  be  eligible  for  Medicaid.  They  will  have  employer  continu- 
ation coverage  for  a  substantial  period  of  time. 

Mr.  DiNGELL.  Will  the  gentleman  yield?  On  the  question  of  eligi- 
bility, the  probability  is  these  people  will  be  covered  with  contin- 
ued benefits  from  GM  through  the  duration  of  the  contract.  They 
would  not  meet  the  means  test  or  the  property  owners  test,  because 
most  of  these  factory  workers  are  good,  stable  people  who  own 
their  own  homes. 

Mr.  HiRSCHLAND.  I  think  one  of  the  things  that  happens  at  the 
point  when  somebody  comes  for  Medicaid  financially,  every  bad 
thing  that  can  happen  to  them  has  happened.  Particularly  when 
you  look  at  the  coverage  levels  of  people  that  are  clearly  below  the 
poverty  level. 

Mr.  Upton.  In  closing — I  know  my  time  is  about  ready  to  expire 
here.  I  am  a  little  concerned  about  the  Canadian  health  plan.  I  rep- 
resent the  other  side  of  the  State,  southwestern  corner,  central 
southern  part,  and  as  I  have  examined  the  Canadian  health 
system,  I  see  a  lack  of  choice  of  physicians,  which  I  am  not  sure  in 
many  cases  people  here  would  want  to  see;  I  also  see  long  waiting 
lists  for  important  procedures,  like  bypasses. 

Rural  areas — it  may  work  better  in  urban  areas.  I  represent  a 
relatively  rural  District.  We  have  seen  the  closing  of  many  health 

Mr.  HiRSCHLAND.  I  guess  I  have  a  different  opinion  than  you  do. 
Congressman.  In  terms  of  choice,  my  understanding  in  Canada, 
there  is  choice  of  physicians.  And  one  of  the  problems  that  we 
have — if  it  is  not  in  your  District,  it  is  fortunate.  In  many  rural 
areas,  there  is  lack  of  access  in  this  country.  It  is  less  true  in 
Canada  than  it  is  here.  There  are  many  parts  of  the  country  where 
it  is  very  hard  to  get  access  to  health  care  and  health  care  provid- 
ers, because  in  rural  areas,  people  like  to  practice  less. 

You  take  a  look  at  where  you  find  physicians,  the  concentration 
for  physicians  per  population  and  you  compare  rural  areas  to 
urban  areas  and  suburban  areas.  In  rural  areas,  that  coverage  is 

Mr.  Upton.  In  regard  to  heart  surgeons,  there  is  one  in  Canada 
for  every  2.1  million  Canadians;  we  have  one  for  every  304,000 
Americans.  MRFs,  we  have  more  in  the  State  of  Washington  than 
in  Canada. 

Mr.  Garrison.  Mr.  Upton,  let  me  ask.  You  talk  about  choice  of 
doctors.  Ask  Congressman  Conyers  what  choice  the  inner  city 
people  have;  there  is  no  choice  for  the  poor  in  this  country  or  the 
people  who  are  unemployed  and  can't  afford  to  go  shopping  for  doc- 
tors. There  is  no  choice.  At  least  in  Canada  you  can  go  see  a  doctor. 
A  lot  of  people  in  this  country  don't  have  the  ability  to  see  a 

Mr.  HiRSCHLAND.  Let  me  add  to  that.  When  you  talk  about  MRI's 
and  number  of  heart  surgeons  for  the  population,  let  me  identify 


some  of  the  problems  we  have.  We  have  many  more  MRI's  than  we 
need.  We  are  paying  for  those  because  that  is  a  capital  expendi- 

People  start  running  the  MRFs  whether  they  are  necessary  or 
not  in  order  to  be  able  to  recover  their  capital  costs.  Somebody  has 
to  pay  for  that. 

As  far  as  heart  surgeons  is  concerned,  there  has  been,  appropri- 
ately so,  more  of  an  emphasis  on  primary  care  in  Canada  than 
there  has  been  here.  We  have  been  oriented  towards  specialists  be- 
cause of  our  reimbursement  system.  What  the  exact  numbers  are,  I 
don't  know.  I  do  know  there  is  more  of  an  emphasis  on  primary 
care  physicians  in  Canada  than  here,  and  that  is  appropriate. 

Mr.  Upton.  Do  you  think  that — there  are  employees  that  have  a 
contract — decent  contract  with  health  benefits,  would  they  rather 
give  that  up  and  change  that  for  the  Canadian  system?  Do  you 
think  the  quality  of  care  under  the  Canadian  system  will  be  better? 

Mr.  HiRSCHLAND.  I  believe  our  members  understand  how  fragile 
the  health  care  coverage  they  have  is.  They  recognize  it  is  employ- 
ment-based. They  recognize  their  employers  in  many  cases  are  in 
fragile  situations. 

Unfortunately,  in  my  15  years  *with  UAW,  I  have  been  in  a  place 
where  I  went  in  with  employers  who  had  very  good  health  care 
benefits;  unfortunately,  the  company  went  out  of  business  or  was 
sold,  and  1  or  2  years  later,  these  people  had  no  health  care  cover- 
age. They  understand  how  fragile  that  is.  I  think  our  membership 
is  very  supportive  of  a  national  health  care  program. 

Mr.  Upton.  Do  you  think  they  would  give  up  the  specific  pro- 
gram they  might  have  under  the  existing  contract  for  a  Canadian 
type  system? 

Mr.  HiRSCHLAND.  We  represent  Canadian  workers  in  the  UAW 
and  still  represent  some.  The  workers  who  we  represented  in 
Canada  seemed  very  well-satisfied  with  the  system  they  had  there 
and,  if  anything,  more  satisfied  than  the  workers  in  the  United 

Mr.  Upton.  Mr.  Garrison. 

Mr.  Garrison.  I  was  just  going  to  mention  what  David  just  men- 
tioned. We  have  done  polling  in  Canada  because  many  of  the 
unions  have  membership  in  Canada,  and  we  find  repeatedly  the 
workers  in  Canada  are  more  satisfied  with  their  health  care  cover- 

Mr.  Upton.  I  yield  back. 

Mr.  DiNGELL.  The  time  of  the  gentleman  has  expired.  The  Chair 
recognizes  the  other  gentleman  from  Michigan,  Mr.  Conyers. 

Mr.  Conyers.  Mr.  Chairman,  thanks — I  am  not  going  to  ask 
many  questions,  but  this  is  the  panel  that  I  really  want  to  express 
my  appreciation  to  for  starting  off  this  discussion. 

When  I  held  my  hearings  last  year,  Tom  Turner,  Treasurer  of 
AFL-CIO,  testified  for  the  Garrison  organization,  and  Ernie 
Lofton — Mr.  Hirschland  was  with  Ernie  Lofton  when  he  testified 
for  UAW.  I  think  it  is  very  important  that  they  be  commended  for 
the  kind  of  discussion  we  have  generated  here  today. 

The  two  issues  that  are  on  my  mind  are,  first  of  all,  the  Canadi- 
an experience  in  terms  of  how  much  health  insurance  cost  per  car 
is  being  carried  there,  as  opposed  to  how  much  the  cost  of  health 


insurance  for  every  worker  and  retiree  at  UAW  is  being  carried 
right  across  the  river  here  in  Detroit,  and  we  know  what  it  is. 

Lee  lacocca,  not  only  is  the  labor  movement  telling  us — that  is 
what  you  get  for  mentioning  Lee  lacocca.  When  Lee  lacocca  tells 
you  what  the  cost  of  health  insurance  is  on  a  Chrysler  built  in  De- 
troit as  opposed  to  one  being  built  in  Windsor,  you  know  this  issue 
is  now  larger  than  just  collective  bargaining.  The  difference  is  500 
bucks  and  rising,  per  car.  That  means  that  we  are  at  a  serious  dis- 
advantage in  terms  of  international  competition.  If  either  of  you 
want  to  enlarge  on  that,  you  can. 

Mr.  HiRSCHLAND.  I  think  you  have  actually  said  it  all.  Congress- 
man. We  are  at  a  tremendous  disadvantage  competitively.  I  would 
add  to  that,  we  are  really  not  getting  any  benefit  for  that. 

Mr.  CoNYERS.  The  question  to  my  friend,  Frank  Garrison,  is,  first 
of  all,  to  thank  you  and  the  labor  movement  for  being  concerned 
about  the  status  of  health  in  America  beyond  your  union  borders. 
Someone  asked  us  what  would  the  UAW  worker  want  to  give  up, 
not  paying  premiums  in  the  big  plants  at  all.  They  are  covered  in 
the  collective  bargaining  agreement. 

Owen  Beiber  answered  this  question  more  directly  than  anyone  I 
have  heard.  He  said,  "My  people  are  committed  to  national  health 
insurance,  universal  coverage,  single  payer."  He  said,  "Because  in 
the  long  run,  that  is  where  we  are  going  to  end  up." 

In  every  collective  bargaining  agreement,  the  big  sticking  point 
isn't  even  wages  anymore,  it  is  health  benefits.  The  issue  is,  how 
much  are  you  going  to  give  back?  You  are  never  going  to  gain  one 
thing  more.  It  is  how  much  are  you  going  to  give  back  because  of 
the  rising  administrative  costs. 

Our  current  health  care  system  has  1,200  insurance  companies 
with  thousands  of  policies  and  the  madness  that  that  involves.  And 
so,  when  Garrison  talks  about  the  problems  of  people  not  in  the 
labor  movement,  that  is  illustrative  of  the  national  questions  here. 

Thirty  percent  of  Detroiters  are  already  without  a  stitch  of  insur- 
ance, and  anybody  that  is  kicked  out  of  General  Motors  has  to  be 
destitute  to  get  Federal  assistance.  To  qualify,  you  cannot  own  a 
house.  They  will  make  you  sell  your  car.  You  are  on  the  skids 
before  you  can  qualify  for  Medicaid. 

I  just  want  to  say  thank  you  for  advocating  on  behalf  of  every- 
body that  doesn't  have  a  great  union  job  in  this  city,  and  there  are 
more  and  more  people  that  are  in  that  fix.  It  is  important  that  we 
can  come  here  and  talk  about  them,  as  well  as  what  is  good  in 

Mr.  Garrison.  That  is  a  rich  tradition  of  this  movement. 

Mr.  CoNYERS.  I  thank  you  very  much,  Mr.  Chairman. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman.  The  chair  recog- 
nizes now  our  good  friend  from  Michigan,  Mr.  Levin. 

Mr.  Levin.  Thank  you,  Mr.  Chairman.  Just  very  briefly,  what- 
ever plan  one  favors,  the  worst  plan  is  the  status  quo.  The  hearing 
this  morning  already  has  captured  that.  By  the  way,  it  isn't  always 
that  Energy  and  Commerce  and  Ways  and  Means  are  represented 
at  the  same  hearing,  with  Government  Operations  also.  I  think 
that  symbolizes  how  the  pieces  are  really  interrelated  here. 


The  failings  in  Medicaid  spill  over  into  Medicare,  into  the  private 
health  system,  and  any  approach  that  doesn't  look  at  all  of  the 
pieces,  whatever  the  conclusion,  is  going  to  miss  the  target. 

I  close  by  reminding  us  in  this  State,  we  should  need  no  remind- 
er. Our  present  health  system  is  costing  us  competitively  $1,000  a 
car,  more  or  less,  here  in  health  insurance  in  each  automobile, 
versus  $400  to  $500  in  other  countries.  Every  time  a  car  comes  off 
an  assembly  line,  it  is  already  $500  behind  the  competition.  Thank 
you,  Mr.  Chairman. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman.  Mr.  Garrison  and 
Mr.  Hirschland,  your  testimony  has  been  very  helpful  to  us.  We 
thank  you  for  being  our  lead-off  witnesses.  It  is  a  pleasure  to  see 
both  gentlemen. 

We  will  be  working  together  on  this  health  problem,  as  you  very 
well  know,  as  we  have  in  times  past.  Thank  you  very  much  for" 
being  with  us. 

The  Chair  announces  that  our  next  panel  is  one  which  I  think  is 
going  to  be  of  enormous  interest  to  the  subcommittee.  Mr.  Walter 
Maher,  Director  of  Federal  Relations  for  the  Chrysler  Corporation, 
and  Mr.  Patrick  Farver,  Vice  President,  Blissfield  Manufacturing 

Gentlemen,  we  thank  you  both.  Mr.  Farver  has  come  from  very 
far  away.  Your  testimony  we  look  forward  to  with  considerable  in- 

We  are  recognizing  you  first,  Mr.  Maher.  If  you  will  identify 
yourself  for  the  purposes  of  the  record,  you  may  proceed. 


Mr.  Maher.  Thank  you,  Mr.  Chairman.  My  name  is  Walter 
Maher.  I  am  Director  of  Federal  Relations  for  the  Chrysler  Corpo- 
ration. We  appreciate  your  holding  this  hearing. 

There  are  a  lot  of  Johnny-come-latelies  to  this  issue.  Mr.  Chair- 
man, you  have  been  at  it  for  a  long  time,  and  I  think  we  are  get- 
ting a  lot  closer  than  we  were  before.  I  also  appreciate  the  fact  that 
we  have  so  many  members  here  because  I  would  like  to  have  this 
opportunity  to  share  our  opinion  on  the  existing  health  care  system 
and  its  impact  on  the  economic  and  physical  health  of  this  country. 

The  root  of  this  problem  is  cost.  And  the  critical  factor  is  that 
because  we  lack  a  health  system  in  this  country,  a  health  policy, 
we  don't  have  the  tools  to  address  a  health  policy.  And,  as  a  result, 
the  problem  grows,  and  it  is  crippling  our  citizens  and  our  economy 
in  two  key  ways. 

First,  and  we  have  already  heard  a  lot  about  this  this  morning,  it 
burdens  U.S.  manufacturers  with  enormous  costs  that  are  totally 
disproportionate  to  comparable  costs  borne  by  our  foreign  competi- 
tors. In  the  case  of  my  industry,  our  costs  are  more  than  twice 
those  of  German  manufacturers  and  three  times  those  of  Japanese 
health  costs. 

But,  second,  and  we  don't  hear  enough  about  this,  this  entire 
burden,  including  all  health  costs,  ultimately  falls  on  the  back  of 
the  American  consumer  and  American  citizens,  squeezing  too 


many  out  of  the  system,  and  squeezing  the  standard  of  living  of 
those  fortunate  enough  to  have  health  insurance,  through  out-of- 
pocket  payments,  taxes  to  finance  Medicare  and  Medicaid,  higher 
prices,  lower  wages,  less  job  opportunities. 

Consider  for  a  moment  a  very  real-life  example  of  how  health 
costs  impact  manufacturers.  If  you  assume  that  health  costs  in  this 
country  were  evenly  distributed  through  the  economy,  a  U.S.  busi- 
ness, and  this  is  any  U.S.  business,  competing  with  a  Japanese 
firm,  a  U.S.  firm  offering  health  benefits  would  start  out  with  a 
131  percent  health  cost  penalty.  But  you  then  pile  on  cost  shifting 
from  the  government,  and  the  penalty  compared  with  foreign  firms 
gets  worse. 

For  example,  as  you  know,  Mr.  Chairman,  Medicaid  covers  only 
40  percent.  Medicaid  covers  only  40  percent  of  the  portion,  and 
even  for  those  it  does  cover,  it  pays  doctors  and  hospitals  two-thirds 
of  their  costs.  The  residue  gets  shifted  to  the  private  sector. 

You  compare  the  private  sector,  and  the  penalty  for  foreign 
firms  gets  worse  yet.  Two-thirds  of  those  without  insurance  in  this 
country  either  have  full-time  jobs  or  are  dependents  of  people  with 
full-time  jobs. 

So  rather  than  spreading  health  costs  through  retail  and  service 
firms  which  have  little  foreign  competition,  we  shift  costs  to  manu- 
facturers who  do,  because  they  are  the  firms  who  most  often  offer 
health  benefits  and  whose  employees  frequently  have  spouses  or 
dependents  employed  in  the  retail  and  service  sector. 

Finally,  adding  insult  to  injury,  the  U.S.  health  system  penalizes 
a  business  for  its  longevity.  The  older  your  workforce,  the  more 
costs  you  have  to  bear. 

If  my  country  went  over  to  France,  Germany,  Japan  and  built  a 
factory,  we  hire  a  local  workforce,  we  pay  prevailing  wages  and 
benefits.  Our  costs  would  be  substantially  the  same  as  our  French, 
German  and  Japanese  competitors  and  would  be  identical  in 
France.  Even  though  our  workforce  in  those  countries  would  be 
younger,  we  would  have  no  retirees  in  those  countries.  Why?  Be- 
cause in  those  countries  businesses  pay  for  health  care  on  a  pa3rroll 
tax  basis. 

Conversely,  when  foreign  auto  firms  come  to  this  country  and 
offer  health  plans,  they  can  offer  comparable  wages  and  benefit 
programs  but  enjoy  a  significant  health-cost  advantage  simply  be- 
cause of  employee  demographics. 

These  transplant  operations  employ  a  workforce  about  12  years 
younger  on  average  and  are  a  generation  away  from  beginning  to 
accumulate  numbers  of  retirees.  This  gives  them  a  major  cost  ad- 
vantage they  have  not  earned,  and  it  is  simply  a  product  of  our 
health  care  system. 

And  the  result,  as  Congressman  Conyers  pointed  out,  the  differ- 
ence, the  gap  between  our  spending  for  health  this  year  and  a  Jap- 
anese firm  in  Japan  will  well  exceed  $500  per  car.  And,  putting 
that  in  perspective,  my  company's  complete  costs  have  exceeded 
$500  per  car  only  four  times  this  century. 

That  is  a  fact  of  life.  If  Americans  want  to  be  the  best  and  most 
efficient  economy  in  the  world,  we  have  to  take  strides  to  rid  our 
economy  of  these  burdensome  excesses. 


Now,  the  private  sector  has  been  hard  at  work  on  this  problem 
for  years.  But  it  is  important  to  note  that  businesses  large  and 
small  are  finding  out  there  are  clear  limits  to  what  they  alone  can 
do  in  response  to  this  problem,  other  than  managing  their  benefit 
programs  as  effectively  as  possible. 

Simply  put,  the  best  managed  care  or  coordinated  care  plan  in 
the  world  remains  exposed  to  government  cost  shifting,  remains  ex- 
posed to  cost  shifting  from  other  employers  not  offering  coverage, 
the  excesses  of  our  malpractice  system,  and  all  of  the  other  ex- 
cesses of  a  system  lacking  fiscal  discipline.  However,  employers, 
who  after  the  government  are  the  second  largest  payers,  find  that 
they  are  often  in  the  position  to  do  the  same  thing  that  the  govern- 
ment is  doing,  and  that  is  shift  cost. 

Consider  for  a  moment  that  an  employer  who  wants  to  remain 
an  employer  has  to  recover  its  cost.  Accordingly,  to  get  relief  from 
health  cost,  employers  are  adding  to  prices  to  the  extent  the 
market  permits.  They  are  reducing  the  rate  of  wage  growth  to  the 
extent  the  labor  market  permits.  They  are  increasing  deductibles 
and  co-payments  and  reducing  benefits  to  the  extent  the  labor  mar- 
kets permits.  They  are  hiring  fewer  people,  locating  jobs  offshore. 

They  also  earn  less  money.  And  when  they  do  that  they  pay  less 
taxes  which  reduces  the  funds  that  State  and  local  and  Federal 
Governments  have  available  to  meet  other  societal  needs.  They  pay 
less  dividends  which  reduces  the  standard  of  living  of  shareholders. 
And  they  have  reduced  capacity  to  invest  in  R&D,  training,  et 

All  of  this  falls  on  the  back  of  John  Q.  Public  who  doesn't  have 
the  ability  to  shift  cost.  And  that  leads  to  them  either  getting 
squeezed  out  of  the  health  care  system  or  the  deterioration  of  their 
standard  of  living.  And  a  citizenry  either  squeezed  out  of  the 
system  or  squeezed  of  disposable  income  doesn't  make  for  a  healthy 
society  or  a  vibrant  economy.  And  a  sound  economy  is  important  to 
all  businesses  who  wish  to  succeed  in  a  global  marketplace. 

Therefore,  Mr.  Chairman,  we  commend  you  for  this  hearing.  The 
businesses  of  America,  large  and  small,  who  offer  health  plans, 
need  Congress,  need  the  administration  to  focus  on  this  issue  and 
take  the  steps  that  are  necessary  to  rectify  the  social  and  competi- 
tive inequities. 

Thank  you  very  much. 

Mr.  DiNGELL.  Mr.  Maher,  that  is  a  very  impressive  statement. 
We  thank  you. 
[Testimony  resumes  on  p.  60.] 

[The  prepared  statement  and  attachments  of  Mr.  Maher  follow:] 



Walter  B.  Maher 
Director  •>  Federal  Relations 
Chrysler  Corporation 

I  appreciate  the  opportunity  to  share  with  you  our  views  on 
the  existing  health  care  system  and  its  impact  on  the  nation's 
economic  and  physical  health.  In  particular,  I  am  pleased  to 
comment  on  how  the  current  health  system  is  substantially 
penalizing  U.S.  manufacturers  engaged  in  foreign  competition,  how 
it  is  eroding  the  standard  of  living  of  American  citizens,  and  how 
it  is  contributing  in  a  major  way  to  the  continuing  recession  in 
the  country. 


Starting  first  with  basics,  it  is  the  inexcusably  high  cost 
of  health  care  in  America  which  is  at  the  source  of  all  our 
concerns  regarding  the  plight  of  the  uninsured,  the  ruinous  costs 
to  federal  and  state  budgets,  to  businesses  and  to  families,  and 
the  damage  to  our  economy. 

If  the  cost  of  our  health  care  system  was  reasonable,  by  any 
rational  standard,  and  the  only  problem  we  had  was  that  the  poor 
did  not  have  access  to  it,  the  focus  of  remedial  action  would  be 
much  different. 

If  the  cost  of  our  health  care  system  was  reasonable,  by  any 
rational  standard,  and  the  only  problem  we  had  was  one  of  quality, 
the  focus  of  remedial  action  would  be  much  different. 


However,  the  problem  here  is  cost,  and  like  a  cancer  it 
spreads  and  causes  countless  other  complications,  some  equally 
fatal . 

That  we  have  a  problem  controlling  health  costs  in  America 
should  surprise  no  one,  for  it  is  a  direct  result  of  the  fact  that 
this  nation,  and  this  nation  alone,  lacks  any  sort  of  process  to 
control  aggregate  health  spending. 

There  is  overwhelming  evidence  that  health  spending  in 
America  is  clearly  out  of  control.  We  spend  43%  more  per  capita 
than  the  second  most  expensive  country  (Canada) ;  81%  more  than 
number  three  (Sweden)  .  The  situation  is  even  worse  when  we  are 
compared  with  Germany  and  Japan,  home  of  our  major  international 
trade  competitors.  Were  we  to  consume  health  services  in  America 
at  the  same  rate  they  do  in  those  countries,  we  would  have  over 
$300  billion  per  year  available  to  redeploy  in  our  economy 
(Exhibit  1) .  This  exceeds  our  entire  defense  budget.  How  would 
that  be  for  a  "peace  dividend!" 

Health  costs  cripple  our  economy  in  two  key  ways.  First  (and 
we  hear  a  lot  about  this)  they  burden  U.S.  manufacturers  with 
enormous  costs  totally  disproportionate  to  comparable  costs  borne 
by  our  foreign  competitors.  In  the  case  of  autos,  our  costs  are 
more  than  twice  those  of  German  manufacturers  and  three  times  those 
of  the  Japanese.    Second  (and  we  do  not  hear  enough  about  this)  all 


health  costs  ultimately  fall  on  the  back  of  the  American  consumer, 
through  the  cost  of  copayments,  deductibles  and  out-of-pocket 
payments;  through  taxes  to  finance  Medicare,  Medicaid  and  other 
pxiblicly  financed  programs,  including  health  benefits  for  public 
employees;  through  higher  prices;  and  through  lower  wages  and  less 
job  opportunities.  Consumers  with  less  disposable  income  do  not 
make  for  a  dynamic  economy. 


Consider     the     impact     health     related     expenses     have  on 
manufacturers,  in  general,  and  my  industry  in  particular: 

If  health  costs  were  evenly  distributed  throughout  the 
economy,  a  U.S.  business  competing  with  a  Japanese  firm  would 
start  out  with  a  131%  health  cost  penalty  (Exhibit  1)  .  I 
emphasize,  this  is  a  penalty  any  business  offering  health 
benefits  bears,  if  they  encounter  competition  from  Japan  or 
any  other  foreign  nation. 

Pile  on  cost  shifting  from  the  government,  and  the  penalty 
compared  with  foreign  firms  gets  worse.  Example:  Medicaid 
covers  only  40%  of  the  poor,  and  even  for  those  it  covers  it 
pays  doctors  and  hospitals  only  about  2/3  of  their  costs. 
(See  attached  Wall  Street  Journal  article.) 

-  3  - 


Pile  on  cost  shifting  from  the  private  sector,  and  the  penalty 
compared  with  foreign  firms  gets  worse  yet.  Example:  2/3  of 
the  uninsured  have  full  time  jobs  or  are  dependents  of  people 
with  jobs  (Exhibit  2) .  Rather  than  spreading  health  costs 
through  retail  and  service  firms,  which  have  little  or  no 
foreign  competition,  we  shift  costs  to  manufacturers,  who  do 
face  brutal  foreign  competition,  because  they  are  the  firms 
who  most  often  do  offer  health  benefits,  and  whose  employees 
frequently  have  spouses  or  dependents  employed  in  the  retail 
and  service  sectors. 

Note:  A  recent  report  on  Employer  Cost 
Shifting  Expenditures  prepared  for  the 
National  Association  of  Manufacturers 
by  Lewin/ICF  revealed  that  28%  of  U.S. 
manufacturers '  health  costs  were 
accounted  for  by  cost  shifting  from 
government  and  other  employers. 

Adding  insult  to  injury,  the  U.S.  health  system  penalizes  a 
business  for  its  longevity.  The  older  your  workforce,  the 
more  retirees  you  have,  the  higher  your  costs.  Example:  If 
Chrysler  built  a  plant  in  France,  Germany  or  Japan,  and  paid 
its  workers  the  same  wages  as  established  French,  German  or 
Japanese  manufacturers  did,  its  health  costs  would  be 
substantially  similar  (and  identical  in  France)  to  those  of 
its  competitors,  even  though  the  Chrysler  workforce  would 
undoubtedly  be  younger,  with  no  retirees.  Why:  because  in 
those  countries  business  pays  for  health  care  on  a  payroll 

-  4  - 


tax  basis.  Conversely,  when  foreign  firms  come  to  our  country 
and  open  plants,  they  can  offer  comparable  wage  and  benefit 
programs,  but  enjoy  a  significant  health  cost  advantage, 
simply  because  of  employee  demographics.  These  "transplant" 
operations  employ  a  workforce  about  12  years  younger  on 
average,  and  are  a  generation  away  from  beginning  to 
accumulate  numbers  of  retirees.  That  gives  them  a  major  cost 
advantage  they  have  not  earned;  it  is  simply  a  product  of  our 
health  care  system  (Exhibit  3) . 

THE  RESULT  FOR  CHRYSLER;  The  difference  between  our  spending  for 
health  this  year  and  a  Japanese  firm  will  well  exceed  $500 
per  car.  Putting  that  in  perspective,  Chrysler's  total 
profits  have  exceeded  $500  per  car  only  4  times  this  century! 


The  private  sector  has  been  hard  at  work  on  the  health  cost 
problem  for  years.  In  mid-1981,  Chrysler  established  America's 
first  Board  of  Directors • -level  committee  devoted  exclusively  to 
analyzing  Chrysler's  health  care  cost  problem  and  searching  for 
solutions.  Since  that  time,  a  substantial  number  of  cost 
management  initiatives  have  been  adopted  and  even  more  actions  are 
planned.  We  have  a  significant  percentage  of  employees  enrolled 
in  HMOs,  PPOs,  Exclusive  Provider  Organizations  and  various  other 
"managed  care"  programs.     Despite  these  actions,  Chrysler  has  seen 

-  5  - 


its  per  capita  cost  of  providing  health  coverage  to  employees  and 
retirees  increase  at  an  average  annual  rate  of  about  8  percent 
since  1981.  While  this  was  substantially  better  than  the  average 
business'  experience,  it  nevertheless  represented  a  rate  of 
increase  which  exceeded  both  CPI  and  GNP  growth. 

Businesses  are  finding  there  are  clear  limits  to  what  they 
alone  can  do  in  response  to  this  problem,  other  than  managing  their 
benefit  programs  as  effectively  as  possible.  Simply  put:  the  best 
managed  health  care  plam  remains  exposed  to  government  cost 
shifting,  to  cost  shifting  from  employers  not  offering  coverage, 
to  the  excesses  of  our  malpractice  system  and  all  of  the  other 
excesses  spawned  by  a  system  lacking  fiscal  discipline. 

Sadly,  however,  because  we  do  not  have  a  health  policy  in  this 
country,  not  to  mention  a  system  with  fiscal  discipline,  we  lack 
coordination  between  public  and  private  sector  health  plans.  As 
a  result,  government,  the  single  largest  payer,  has  the  opportunity 
to  control  its  spending  by  using  its  legislative  and  regulatory 
powers  to  (1)  define  Medicaid  eligibility  in  ways  which  lead  to 
millions  of  Americans  being  denied  access  to  appropriate  health 
services  at  the  appropriate  time  and  at  the  appropriate  site,  (2) 
pay  physicians  and  hospitals  less  than  fair  fees  for  providing  care 
to  the  poor  and,  in  some  cases,  the  elderly,  and  (3)  defining  the 
Medicare  benefits  package  in  a  way  which  causes  substantially  all 
seniors  having  the  resources  to  do  so  to  have  to  purchase  a  Medigap 

-  6  - 


insurance  policy  thereby  generating  substantial  confusion, 
administrative  hassle  and  expense  for  seniors  as  well  as  for 
providers.  In  one  way  or  another  all  of  these  actions  lead  to 
costs  being  shifted  to  private  sector  payers. 

Employers,  the  second  largest  payer,  are  in  the  position  to 
do  the  same  thing  .  .  .  shift  costs.  Certainly  many  employers,  and 
most  large  employers,  try  their  best  to  manage  their  health 
benefits  programs.  However,  consider  for  a  moment  that  an 
employer,  who  wishes  to  remain  an  employer,  must  recover  its  costs. 
Accordingly,  to  get  relief  from  health  costs  employers: 

Add  to  consumer  prices  to  the  extent  the  market  permits. 

Reduce  the  rate  of  wage  growth  to  the  extent  the  labor  market 

Increase  deductibles  and  copayments  or  reduce  benefits  to  the 
extent  the  labor  market  permits. 

Hire  fewer  people. 

Locate  jobs  off-shore. 

They  also: 

-  7  - 


Earn  less  profits. 

Pay  less  taxes,  which  reduces  funds  available  for  other 
societal  needs. 

Pay  less  dividends.  , 

Have  reduced  capacity  to  invest  in  R&D,  training,  etc. 

All  of  this  impacts  individual  citizens.  It  is  clearly 
contributing  to  the  growing  awareness  among  Americans  that  it  is 
they  who  ultimately  bear  the  brunt  of  a  health  system  without 
fiscal  discipline. 

A  citizenry  squeezed  for  disposable  income  coupled  with  a 
weakened  business  community  do  not  make  for  a  vibrant  economy.  A 
sound  American  economy  is  vitally  important  for  those  American 
businesses  who  wish  to  succeed  in  a  global  marketplace. 

Quite  clearly,  therefore,  if  American  manufacturers  in 
general,  and  American  auto  manufacturers  in  particular,  are  to  be 
a  force  in  the  world  economy  in  the  21st  Century,  immediate 
Congressional  action  is  required  to  rectify  these  competitive 
penalties.  We  submit  the  need  for  reform  of  our  health  care  system 
has  been  well  established.  But  what  direjction  should  this  reform 
take?     First,  we  need  to  establish  some  objectives. 

-  8  - 


Our  objectives  should  be  a  health  system  within  which  the 
necessary  health  care  needs  of  all  citizens  are  met;  a  system  which 
consumes  resources  prudently,  balances  spending  on  health  with 
other  national  priorities,  spreads  costs  over  the  broadest  possible 
base  and  does  not  disproportionately  impact  any  segment  of  the 
economy;  and  a  system  which  exists  in  a  context  of  continuous 
quality  improvement. 

To  accomplish  these  objectives  certain  principles  are  key: 


This  obviously  is  only  an  issue  were  health  system  reform  to 
involve  something  other  than  a  single-payer  system.  For  example, 
some  reform  proposals  envision  a  public/private  partnership 
building  on  today's  employment  based  model  for  those  in  the 
workplace.  Under  such  a  reform  policy,  tax  financed  plans  would 
be  available  for  all  the  poor  and  elderly.  This  would  address  one 
piece  of  the  cost  shifting  dilemma  faced  by  the  private  sector. 
Further,  however,  given  the  government  as  a  "partner",  a  process 
is  required  to  establish  fair  provider  fees  for  fee-for-services 
medicine,  and  such  fees  must  be  applicable  to  both  public  and 
private  sector  payers.  This  would  close  the  cost  shifting  loop, 
at  least  insofar  as  the  government  is  concerned. 

-  9  - 



If  we  are  to  rely  on  employer  financing  in  the  future,  all 
employers  must  participate.  This  can  be  done  without  harming  weak 
or  deterring  start-up  enterprises  and  without  encumbering 
established  employers  with  unreasonable  costs  and  FASB  liabilities. 
To  help  accomplish  this  within  a  public/private  reform  strategy, 
any  employer  (or  individual)  should  have  the  choice  of  either 
purchasing  private  insurance  or  paying  a  tax  no  greater  than  its 
appropriate  share  of  the  cost  of  a  community  rated  premium 
unadjusted  for  age,  thus  permitting  enrollment  in  a  publicly 
financed  health  plan  or  a  choice  of  such  plans.  This  will  help 
assure  costs  are  spread  across  the  broadest  possible  base  in  our 
economy  and  that  no  sector  of  the  economy  or  no  employer  bears  a 
disproportionately  large  share  of  expenditures. 

The  payroll  tax  provisions  of  any  such  reform  proposal  should 
be  primarily  based  on  what  is  an  appropriate  health  tax  for  a  U.S. 
employer  which  needs  to  remain  competitive  in  world  markets.  There 
is  no  reason  why  the  sole  source  of  support  for  such  publicly 
financed  health  plans  need  be  payroll  taxes  and  individual 
premiums.  The  much  more  critical  needs  are  for  the  program  to  be 
administered  efficiently,  for  health  services  to  be  rendered 
efficiently,  maximizing  the  use  of  quality  driven  organized 
delivery  systems,  and  for  costs  to  be  distributed  fairly  throughout 
the  economy,  including  support  from  employers  and  employees. 

-  10  - 



Further,  with  respect  to  the  tax  rate,  in  the  interest  both 
of  distributing  the  cost  of  health  care  as  broadly  as  possible 
through  the  economy,  and  of  keeping  the  costs  of  American  producers 
competitive  with  foreign  firms,  employees  should  contribute  their 
fair  share  of  the  cost  of  the  system.  In  Germany,  for  example,  the 
employer  and  employee  share  the  payroll  tax  which  finances  the 
health  system  on  a  50/50  basis.  In  Japan,  the  comparable  employer 
share  is  typically  about  60%. 

Finally,  we  should  not  lose  sight  of  the  fact  that  insurance 
companies,  certainly  large  insurers,  can  play  a  major  role  even  in 
tax  financed  health  plans.  Further,  this  role  need  not  be  limited 
to  purely  administrative  (as  is  much  of  the  work  of  Medicare  fiscal 
intermediaries) .  For  example,  private  insurers  play  a  major  role 
in  the  Federal  Employees  Health  Benefit  Plan. 


No  nation  on  earth  has  embarked  on  a  program  to  provide  all 
citizens  access  to  health  care  without  concurrently  adopting  a 
strategy  to  control  aggregate  national  health  care  spending.  Such 
management  of  spending  should  extend  not  only  to  spending  for 
health  services,  but  spending  for  capital  items  and  graduate 
medical  education  as  well.  Control  over  aggregate  expenditures  is 
critical.    Any  reform  strategy  which  fails  to  acknowledge  this  fact 

-  11  - 


will  without  doubt  fail  to  balance  health  spending  with  all  of  our 
other  societal  needs. 

Finally,  in  shaping  a  health  system  for  the  21st  century, 
America  should  strive  to  become  the  best.  We  agree  with  the  recent 
GAO  report  regarding  the  Canadian  health  system,  that  we  should  not 
feel  compelled  to  adopt  Canada's  or  any  other  nation's  health 
system,  lock,  stock  and  barrel.  Many  nations,  including  Canada  and 
Germany,  believe  they  are  spending  too  much  for  health  care  and  are 
looking  to  build  on  their  systems  by  adopting  some  of  the  good 
elements  of  the  U.S.  system.  We  should  do  the  same.  For  example, 
Canada  is  exploring  the  use  of  organized  health  care  delivery 
systems ;  but  there  is  no  consideration  being  given  by  Canada,  or 
any  other  country,  to  dismantling  its  controls  over  overall  system 


Unfortunately,  there  are  many  obstacles  to  systemic  reform. 
For  example,  a  major  problem  the  health  system  reform  debate  must 
contend  with  is  how  to  address  the  legitimate  concerns  of  the  very 
small  business  person.  Seventy-five  percent  of  U.S.  businesses 
employ  fewer  than  ten  persons.  The  majority  of  them  do  not 
currently  offer  health  coverage.  They  represent  an  obstacle  to 
universal  access  if  employer-based  coverage  is  to  be  the  chosen 
financing  vehicle. 

-  12  - 


clearly,  a  mandate  that  all  small  employers  buy  private 
insurance  is  not  the  best  alternative.  Requiring  a  small, 
marginally  profitable,  low  wage  paying  fira  to  pay  the  same  amount 
for  a  standardized  benefit  plan  as  the  largest,  most  prosperous 
corporation  would  pay  is  a  strategy  we  do  not  see  employed  by  any 
of  our  leading  foreign  trading  partners.  Understandably, 
therefore,  when  such  strategies  have  been  suggested  in  the  past  the 
small  business  community  opposed  them  and,  more  often  than  not, 
urged  Congress  to  take  steps  to  make  health  insurance  more 

Enter:  Pay  or  Play;  a  financing  strategy  designed  to  ease 
the  burden  on  small  employers.  Given  a  7%  payroll  tax,  an  employer 
paying  the  minimum  wage  could  enable  a  worker  to  choose  a  quality 
health  plan  by  paying  a  30  cent  per  hour  payroll  tax.  Try  as  we 
may,  it  is  not  likely  we  will  succeed  in  driving  private  insurance 
rates  down  that  low!  The  response  by  small  business  organizations 
to  such  a  proposal:  opposition;  opposition  even  to  comprehensive 
reform  proposals  incorporating  tough  cost  containment  provisions, 
provisions  assuring  quality,  assuring  insurance  and  malpractice 
reform,  assuring  expansion  of  private  sector  oriented,  competitive 
organized  delivery  systems  .  .  .  all  because  such  proposals  seek 
to  have  all  employers  in  some  way  participate  in  the  financing  of 
this  nation's  health  care  system. 

-  13  - 


If  the  concerns  of  these  employers  cannot  be  satisfied  because 
of  worries  about  tieing  health  coverage  in  any  way  to  employment 
and  the  resulting  impact  on  hiring  and  production  costs,  and  as  a 
result  the  health  system  reform  needed  by  all  employers,  including 
many  small  employers,  currently  offering  coverage  is  stalemated, 
then  we  believe  it  would  be  appropriate  to  reconsider  the  tie  to 
employment  and  move  to  a  fully  publicly  financed  system. 

On  a  related  note,  while  much  attention  has  been  given  to  the 
concerns  of  small  businesses,  as  noted  earlier  similar  attention 
should  be  accorded  the  problems  of  mature  companies.  Many  such 
firms  have  been  in  business  well  over  50  years,  were 
extraordinarily  labor  intensive  (and  still  are  to  a  lesser  extent) , 
and  now  have  many  retirees  and  older  workforces  reflecting  a 
combination  of  the  firms'  years  of  existence,  continued  automation 
and  foreign  competition.  With  the  U.S.  increasingly  battling  in 
a  global  economy,  we  must  revisit  rules  applicable  to  U.S.  firms 
which  differ  from  rules  applicable  to  our  major  trading  partners. 
For  example,  rules  or  practices  relating  to  the  way  employers  help 
finance  the  provision  of  health  care  to  employees  and  to  pre-age 
65  retirees,  and  the  way  businesses  must  account  for  such  costs. 
By  focusing  all  our  attention  on  small  businesses  we  run  the  risk 
of  becoming  a  nation  of  start-up  companies,  which  gradually  over 
time  lose  their  markets  to  foreign  owned  producers. 

-  14  - 


There  have  been  other  road  blocks  to  reform.  Some  approach 
myth  status.  For  example,  "managed  care"  is  often  cited  as  an 
alternative  to  a  tax  financed  system  as  if  they  were  mutually 
exclusive.  They  are  not.  The  manner  in  which  a  society  chooses 
to  deliver  health  services  to  citizens  and  the  manner  that  same 
society  chooses  to  finance  the  delivery  of  care  are  distinct 
issues.  Clearly,  "managed  care"  is  a  valid  cost  control  strategy 
and  should  be  encouraged.  Medicare  today,  or  the  entire  Canadian 
system  for  that  matter,  could  be  100%  managed  care.  The  Federal 
Employees  Health  Benefits  Plan  could  be  100%  managed  care.  We  must 
not,  therefore,  let  "managed  care"  become  the  "Voluntary  Effort" 
of  the  90s  and  stifle  the  systemic  changes  that  are  necessary. 
More  significantly,  however,  regardless  of  how  low  "the  market"  can 
drive  down  prices,  any  governor  or  Congress,  desperate  about  their 
respective  deficits,  can  legislate  them  lower  and  shift  costs  to 
an  employer  in  the  process. 

Another  issue  currently  in  vogue  is  insurance  reform,  chiefly 
with  respect  to  small  businesses.  Insurance  reform  is  essentially 
an  insurance  policy  holder  payment  equity  issue.  Huge  penalties 
currently  paid  by  many  small  policy  holders  will  simply  get  spread 
among  other  policy  holders.  It  promises  little,  if  anything,  to 
control  aggregate  U.S.  health  costs  or  improve  the  plight  of  the 
uninsured.  It  is  not  a  bad  idea;  but  we  must  not  delude  ourselves 
it  is  a  panacea. 

-  15  - 


Another  myth,  a  classic  red  herring,  is  that  any  control  over 
aggregate  spending  will  cause  citizens  to  stand  in  line  for 
services  as  health  care  is  rationed.  This  "your  money  or  your 
life"  threat  is  contained  not  so  subtly  in  many  outcries  from  some 
in  the  provider  and  insurance  communities  and  is  as  bogus  as  it  is 
unworthy  of  its  proponents.  It  clearly  fails  to  differentiate 
between  a  budgetary  process  and  the  size  of  the  agreed  upon  budget. 
The  distinction  is  important. 

First,  we  should  never  fear  rationing  excess;  instead  we 
should  seek  to  eliminate  it.  More  fundamentally,  however,  having 
a  "budget"  process  does  not  necessarily  imply  deprivation  or 
queues.  It  is  simply  a  function  of  how  much  a  society  chooses  to 
spend  on  health  or  anything  else.  If  you  have  a  large  enough 
budget  for  Medicare  or  any  other  population,  you  can  get  instant 
gratification.  The  key  is  to  create  a  process  where  citizens  can 
choose  where  they  want  to  spend  their  resources.  The  alternative 
to  a  budget  is  not  to  have  one  ...  to  have  no  control  on 
spending.  Yet  this  is  what  we  have  today  and  it  is  the  reason 
spending  for  health  is  soaking  up  so  much  of  our  nation's 
resources,  leaving  less  for  other  needs. 

Having  a  budget  process  is  important,  for  in  America,  like 
Canada  and  elsewhere  in  the  world,  citizens  mainly  pool  their  money 
to  buy  health  care.  Here  we  do  it  through  the  tax  system  and  by 
purchasing  insurance.     In  Canada  its  virtually  all  through  the  tax 

-  16  - 


system.  In  neither  country,  however,  do  individual  citizens  take 
out  their  wallets  or  checkbooks  and  pay  for  health  services 
rendered  in  the  normal  course  of  events.  In  both  countries,  some 
other  party  is  usually  responsible  for  all  or  most  of  the  bill. 

Accordingly,  given  the  subject  matter  of  the  transaction  .  .  . 
life,  death,  pain  and  suffering;  given  the  fact  citizens  pool  their 
money  to  pay  for  it  thus  destroying  any  semblance  of  a  market  which 
could  normally  be  expected  to  efficiently  allocate  resources;  given 
a  private  sector,  entrepreneurial  minded,  medical-industrial 
complex  "selling"  to  such  "consumers;"  absent  some  legislated 
process  to  control  aggregate  expenditures  you  are  assured  the 
entrepreneurs  will  win  and  you  will  have  runaway  spending  .  .  . 
precisely  what  we  have  in  America  today.  In  all  other  fields  of 
commerce,  save  health  care,  entrepreneurs  must  confront 
limits  .  .  .  typically  measured  by  the  amount  of  a  consumer's 
disposable  income.  This  forces  choices.  In  health  care  today,  the 
choice  is  automatic  .  .  .  the  dollars  go  to  health  care  regardless 
of  consumer  or  payer  wishes.  Everything  else  gets  rationed!  This 
must  change. 


Americans  are  clearly  not  aware  of  the  growing  costs  they 
continue  to  bear  as  a  result  of  inaction  ...  as  a  result  of 
failing  to  step  up  to  the  need  to  reform  our  nation's  health  care 

-  17  - 


system.  Barring  change,  we  believe  health  costs  will  easily  exceed 
$2  trillion  by  the  year  2000  and  absorb  over  20%  of  our  nation's 
GDP.  Health  costs  are  growing  far  faster  than  family  income,  than 
business  income,  than  local,  state  or  federal  government  income 
(i.e.,  tax  receipts).  The  result:  a  steady  reduction  in  citizens' 
standard  of  living  as  health  care  absorbs  more  and  more  of  our 
citizens'  and  our  nation's  resources  and  saps  the  strength  of  its 

For  example,  in  1991  45%  of  the  growth  in  our  economy  was 
accounted  for  by  increased  health  spending.^  Even  given  the 
Administration's  forecast  for  an  improved  economy  in  1992,  health 
spending  this  year  will  consume  almost  14%  of  our  GDP  and,  more 
significantly,  new  spending  on  health  will  drain  at  least  31%  of 
every  single  dollar  of  economic  growth. 

This  is  happening  without  a  vote  of  the  people  because  our 
nation  lacks  a  health  policy,  lacks  a  system  to  address  the 
problem.     This  is  the  result  of  inaction. 

While  this  high  percent  was  undoubtedly  aggravated  by  the 
slow  growth  in  our  economy,  the  slow  growth  was  itself  caused  in 
part  by  the  burden  health  expenditures  impose  on  the  economy. 

-  18  - 



To  put  such  a  system  in  place,  we  see  two  options.  Both  would 
foster  a  pluralistic,  private-sector-oriented,  competitive  health 
care  delivery  system.  Both  would  assure  access  to  affordable 
health  care  for  all  residents.  Both  would  embody  a  process  for  the 
determinations  of  fair  provider  reimbursement,  with  the  result 
binding  on  all  f ee-f or-service  payers.  And  both  would  have  a 
process  to  assure  control  over  aggregate  health  spending. 

One  option  would  be  financed  by  building  on  the  current 
public/private  model.  The  other  would  be  financed  principally 
through  the  tax  system.     Chrysler  could  support  either  model. 

With  reference  to  a  public-private  model,  Chrysler  has  been 
working  with  The  National  Leadership  Coalition  for  Health  Care 
Reform.  The  Coalition  is  made  up  of  businesses  from  many  varied 
industries,  unions,  health  care  professionals,  and  consumers.  It 
is  committed  to  effective  reform  of  the  health  care  system. 

Last  month  the  Coalition  announced  its  proposal,  the  result 
of  over  eighteen  months  of  effort  to  forge  a  consensus.  This 
comprehensive  proposal,  which  seeks  a  public-private  partnership, 
incorporates  as  one  of  its  features  a  "pay  or  play"  financing 
strategy  for  those  in  the  workplace. 

-  19  - 


Chrysler  can  support  The  National  Leadership  Coalition 
proposal  because  it  makes  clear  the  need  for  the  public  and  private 
sectors  to  work  in  a  coordinated  fashion;  because  it  makes  clear 
the  need  to  provide  access  to  affordable  health  care  for  all 
citizens;  because  it  establishes  a  process  to  control  aggregate 
health  costs;  because  it  eliminates  cost  shifting  from  the  public 
to  the  private  sector;  because  it  embraces  the  concept  of  community 
rating;  because  it  allocates  costs  equitably  across  the  economy  to 
help  insure  a  competitive  business  environment;  and  because  it 
underscores  the  need  for  prompt  action.  The  Coalition's  proposal, 
if  enacted  now,  would  save  over  $1.8  trillion  by  the  end  of  this 
decade  and  over  $600  billion  per  year  starting  in  the  year  2000. 
It  is  a  proposal  which  is  good  for  all  sectors  of  this  economy  and 
particularly  for  the  uninsured  and  for  those  in  the  private  sector 
who  have  been  bearing  the  brunt  of  cost  shifting.  It  is  a  proposal 
which  is  doable  and  which,  ironically,  would  still  find  the  U.S. 
with  the  highest  per  capita  health  costs  in  the  world.  So, 
clearly,  the  savings  achieved  do  not  come  at  the  expense  of  the 
quality  of  care  available  to  Americans. 

The   businesses    of   America,    particularly   our  manufacturing 

base,  need  this  type  of  health  system  reform  now.    The  citizens  of 

America  need  this  type  of  health  system  reform  now  to  help  them 

regain  the  standard  of  living  they  have  seen  erode  over  the  past 

decade.     We  need  to  take  the  hundreds  of  billions  of  dollars  our 

health  system  wastes  each  year  and  make  it  available  for 
redeployment  in  our  economy,    investing  to  educate  children,  to 

enhance  the  skills  of  our  workers,  to  improve  our  infrastructure, 

and  to  make  our  domestic  industries  more  efficient.     In  short,  to 

help  meet  the  needs  of  all  citizens  and  our  economy  in  general. 

We  pledge  to  work  with  you  and  any  others  who  are  willing  to 

make  this  type  of  vision  a  reality  for  our  country. 




1980    1990 

%  U.S.  %  U.S. 

$        Higher  $  Higher 

United  States     $1,089        -  $2,566 
Germany  $    704        55%  $1,287  99% 

Japan  $    522       109%  $1,113  131% 

Source:  Organization  for  Economic  Cooperation 
AND  Development:    Facts  and  Trends 




Domestic  Vs.  Transplant 
Pensions  And  i-ieaith  Care 


Mr.  DiNGELL.  Mr.  Farver,  we  are  appreciative  of  your  being  here. 
Will  you  give  your  full  name  for  the  record? 

Mr.  Farver.  Thank  you,  Mr.  Chairman. 

My  name  is  Patrick  Farver,  I  am  vice  president  of  Blissfield 
Manufacturing  Company  in  Blissfield,  Michigan. 

I  guess  I  am  here  representing  the  little  guy.  I  do  have  an  open- 
ing statement  which  is  a  brief  summary  of  my  total  statement 
which  I  would  like  to  include  in  the  record. 

Mr.  DiNGELL.  Without  objection,  your  full  statement  will  be  in- 
serted in  the  record.  We  recognize  you  for  such  comment  as  you 

Mr.  Farver.  Thank  you,  Mr.  Chairman.  Good  morning  and 
thank  you  for  the  opportunity  to  share  my  thoughts  with  you  on 
the  problem  of  escalating  health  care  costs. 

My  family's  business  was  started  46  years  ago  by  my  grandfa- 
ther. I  am  the  third  generation  in  the  business  and  hope  to  be  able 
to  bring  my  sons  into  the  business  in  the  future. 

One  of  if  not  the  most  frightening  things  we  face  as  a  company  is 
the  uncontrollable  rise  in  the  cost  of  health  care  insurance.  We  at 
Blissfield  Manufacturing  Company  have  always  recognized  that  the 
most  important  and  valuable  asset  is  our  people.  We  have  many 
people  that  have  been  with  our  company  30,  35  and  as  long  as  45 
years.  We  also  have  many  fathers  and  sons  working  together  in  our 
facility.  We  have  always  taken  care  of  our  employees  and  our 
family,  if  you  will,  and,  in  turn,  they  have  taken  care  of  us.  That  is 
why  we  have  been  in  business  46  years  and  continue  to  be  a  strong, 
successful  company. 

But  our  ability  to  take  care  of  our  employees  and  still  remain 
competitive  and  profitable  is  dissolving  quickly.  The  uncontrollable 
rise  in  health  care  costs  have  drastically  affected  our  profitability. 
We  have  been  forced  to  put  more  of  the  burden  on  the  employee 
and  in  some  cases  reduce  the  level  of  benefits  we  provide.  For  the 
first  time  in  46  years  we  have  to  consider  having  our  employees 
contribute  to  the  cost  of  health  care  premiums.  The  costs  have 
risen  at  such  a  rate  that  our  sales,  growth  and  cost-reduction  pro- 
grams cannot  keep  pace  with  the  increases  in  health  care  costs.  We 
still  offer  a  program  that  is  better  than  most,  but  our  ability  to 
continue  that  practice  is  quickly  diminishing. 

I  strongly  feel  that  companies  that  take  proactive  measures  to  in- 
crease the  wellness  of  their  employees  through  education  and  pre- 
vention should  be  given  incentives  to  continue  these  practices, 
while  companies  that  don't  should  be  penalized.  By  practicing  pre- 
vention and  maintenance  of  health  care,  we  take  many  of  the 
people  out  of  the  already  overburdened  system. 

Health  care  needs  to  get  back  to  its  roots  of  being  a  service  to 
the  people  and  not  a  vehicle  to  generate  huge  profits  for  insurance 
companies  and  unscrupulous  people  that  would  abuse  the  system 
for  their  own  personal  gain. 

Thank  you,  and  I  would  be  happy  to  take  any  questions  to  the 
best  of  my  ability. 

[The  prepared  statement  and  attachment  of  Mr.  Farver  follows:] 



626  Depot  St  •  Biisst.eid  49228  •  Phone  5i7  486  2i2i  •  FAX  517.486-2128 




Blissfield  Manufacturing  Company  is  a  46  year  old  family 
owned  corporation.   We  employ  between  200  to  250  people  with  all 
operations  combined.   We  started  out  in  a  5000  sq.    ft.  building 
in   1946  and  now  occupy  a  little  over  400,000  sq.    ft.    The  main 
focus  of  Blissfield  Mfg.   Co.   business  is  the  refrigeration, 
automotive,    off  road  and  construction  equipment  markets. 

Blissfield  Mfg.   Co.   has  always  believed  its  most  valuable 
and  important  asset  was   its  people.   As  stated  earlier  we  are  a 
family  business  and  have  tried  to  treat  all  of  our  employees  as 
we  would  our  family.   Blissfield  has  always  and  continues  to 
offer  its  employees  an  excellent  benefit  package  including 
major  medical,    optical,   dental  and  prescription  drug  coverage. 
Up  until  a  few  years  ago  the  company  paid  all  costs  and  all 
employees  had  first  dollar  coverage.   Due  to  escalating  costs  we 
were  forced  to  change  the  salaried  employees  benefits  to  an 
80/20  co-pay  situation.   As  you  can  see   from  the  attached  graph 
our  costs  on  an  average  have  gone  from  around  $  500  per  year 
per  employee  in  1968  to  close  to  $  6000  per  year  per  employee 
in  1992.   The  most  dramatic  changes  coming  in  the  last   10  years. 
The  costs  are  out  of  control.   How  can  the  small  business  in 
America  compete  in  the  world  market  when  they  have  no  control 
over  these  outrageous  costs  increases.   We  can  go  through  many 
cost  reduction  programs  and  implement  new  methods  of 
manufacture  but  there  is  no  way  these   things  will  keep  pace 
with  the  ever  increasing  costs  of  health  care.   At  what  point 
does  the  cost  of  health  care  surpass  the  hourly  wedges  we  pay 
our  people  ?  Looking  at  the  last  ten  years   it  won't  be  long. 
Under  the  current  system  I  can  foresee  people  working  for 
benefits  and  not  hourly  wedge  or  salary  considerations. 

The  stress  on  the  working  people  is  also  intense.   As  the 
costs  of  health  care  keeps  sky  rocketing  peoples  attention 
turns  to  worrying  about  their  ability  to  survive  an  illness  or 
injury  that  may  cost  them  beyond  their  current  coverage. 
Productive  time  and  attention  to  the  job  at  hand  is  thus 
diluted.   Also  this  health  care  cost  problem  continues  to  erode 
the  working  relationship  between  management  and  labor.   As  costs 
continue  to  rise,   management  has  to  find  ways  to  control  this 
escalation . 



58-688  0-92 

-  3 


In  most  cases  this  leads  to  reduced  benefits  as  well  as 
increased  cost  burden  to  the  employees.   In  some  cases  the 
employer  has  to  turn  to  different  programs  for  different  groups 
of  employees  based  on  union/non  union,   salaried,   hire  dates  and 
a  host  of  other  options.   This  is  hard  to  administer  and  also 
fosters  ill  feelings  among  employees  that  one  group  may  have 
more  or  better  benefits  than  another. 

I  think  that  there  is  a  much  larger  and  more  far  reaching 
problem  that  the  health  care  issue  is  a  major  part  of.   That  is 
the  question  of  what  is  really  morally  right  in  our  society. 
Has  the  operation  of  the  business  become  so  hardened  and  a 
slave  to  the  almighty  dollar  that  all  compassion  and 
consideration  for  human  casualty  is  forgotten.   If  we  look  at 
the  overall  impact  a  Business  like  Blissfield  Mfg.   Co.   has  on  a 
small  community  such  as  Blissfield  Michigan  the  overall  picture 
becomes  a  bit  more  complicated  than  just  health  care  costs.  We 
currently  pay  approximately  30%  of  the  taxes  and  employ  many  of 
the  local  people  both  in  the  factory  as  well  as  the  office.  The 
money  they  make  buys  homes  and  local  services  that  also 
generate  taxes  and  income  to  the  community.   They  in  turn 
support  the  local  retail  business  who  also  pay  taxes  to  the 
community  and  so  on.   The  point  being  that  if  costs  get  to  the 
point  that  they  threaten  the  existence  of  the  business  or  the 
benefit  level  has  to  drop  to  stay  competitive,     you  may  loose 
employees.   The  schools,   the  retail  businesses,   the  suppliers, 
the  doctors,    lawyers,   and  every  person  in  a  community  feel  the 
after  shock  of  a  business  closing  or  cut  back  in  one  way  or 
another.    Its  a  huge  domino  effect  that  is  felt  through  the 
community . 

Now  lets  consider  the  effect  on  those  men  and  women  that 
work  all  their  lives  and  build  up  a  pension  for  retirement. 
With  the  supplemental  health  care  needed  in  most  situations  the 
cost  often  exceeds  the  monthly  pension.   What  are  these  people 
supposed  to  live  on.   The  costs  have  gone  so  high  that  many  opt 
not  to  have  any  insurance  due  to  the  high  cost.   This  is  like 
Russian  roulette.   They  hope  they  won't  need  the  insurance  but 
the  probability  is  that  they  will.   What  a  way  to  spend  your 
"Golden  Years"  worrying  about  if  you  can  pay  the  medical  bills. 
The  stress  of  the  worrying  is  enough  to  make  them  sick. 

Somewhere  along  the  line  our  society  has  drifted  away  from 
what  made  our  country  great.    Independent  people  working 
together  for  the  benefit  of  all.   We  have  become  so  engulfed  in 
the  money  and  profits  and  material  gains  that  we  have  lost 
sight  of  what   is  really  important  for  the  long  run.     The  focus 
has  to  turn  back  to  people  helping  people.   The  government  can't 
administer  the  health  care  system.   They  can't  even  deliver  the 
mail  cost  effectively  so  how  can  they  expect  to  administer  and 
control  the  health  care  system  effectively.    It  is  just  another 
invitation  for  abuse  and  corruption.     We  need  to  put  the 
control  back  at  the  local  level.   Let  the  communities  work 
together  to  provide  health  care  to  their  citizens.   Their  are 
many  small  communities  of  excellence  that  need  to  be  modeled. 
Focus  on  the  good  that   is  being  done  rather  than  what  is  always 
wrong.    If  we  continually  focus  on  the  negative  we  will  continue 
to  produce  negative  results.   Find  the  good  and  focus  on  what  is 
right  and  build  from  there.   We  are  still  the  greatest  nation  on 
earth  and  if  we  redirect  our  focus  to  the  things  we  do  right  in 
the  health  care  system  and  how  to  best  serve  all  the  people 
instead  of  how  to  complicate  the  process  and  allow  huge  profits 
at  the  expense  of  the  working  people  we  will  find  the  RIGHT 
solution.   Prevention,   Education  and  incentives  for  those  that 
are  contributing  to  the  solution  will  go  a  long  way  to  finding 
a  better  way  to  administer  health  care  in  the  United  States. 
Reward  those  that  are  finding  solutions  and  penalize  those 
contributing  to  the  problem. 



Mr.  DiNGELL.  The  committee  thanks  you.  We  know  you  have 
come  a  considerable  distance. 

We  also  know  that  you  and  your  company  are  struggling  to 
maintain  health  benefits  for  your  employees.  We  know  how  diffi- 
cult it  is.  The  communications  with  staff  have  indicated  to  us  not 
only  the  difficulty  with  which  you  are  confronted  but  the  vigorous 
way  in  which  you  are  addressing  a  difficult  problem. 

The  Chair  is  going  to  recognize  my  colleague,  first.  Mr.  Schaefer. 

Mr.  Schaefer.  I  thank  the  Chair,  and  I  appreciate  the  opportuni- 
ty to  get  your  views  on  this. 

I  think  this  certainly  ties  into  ever5rthing.  I  am  going  to  direct 
my  questions  more  to  you,  Mr.  Farver,  and  my  colleague,  because 
of  time  limits  here. 

We  know  we  have  a  disadvantage  when  it  comes  to  the  Japanese 
in  the  way  that  they  handle  their  health  care  costs  and  the  costs  of 
their  automobiles.  Sandy  mentioned  a  few  minutes  ago  that  it  was 
something  like  a  $1,000  per  car,  depending  on  the  type  of  car  it  is. 
But  you  previously  described  that  there  is  an  automatic  131  per- 
cent of  health  care  cost  penalty  for  American  companies  competing 
with  Japanese  firms.  Can  you  elaborate  on  this? 

Mr.  Maker.  Yes.  There  is  an  exhibit  to  my  statement.  Congress- 
man Schaefer,  that  gives  you  the  source  of  that.  What  that  is  is 
based  on  the  per-capita  spending  on  health  care  in  the  United 
States,  all  payers  versus  per-capita  spending  on  health  care  in 
Japan.  The  OECD  publishes  that  data  for  all  countries  in  the 
world.  And  that  information  was  the  source  of  the  information  re- 
garding the  comparison  with  Germany  and  Canada,  et  cetera.  It  is 
per-capita  health  spending.  Take  all  the  dollars  in  the  Nation  that 
are  spent  on  health,  divided  by  the  number  of  people. 

Mr.  Schaefer.  While  Congress  is  translating  the  dollars  and 
cents,  could  you  possibly  make  an  automobile? 

Mr.  Maher.  I  think  as  you  heard,  in  fact.  Congressman  Upton 
was  at  a  hearing  where  a  member  of  the  faculty  of  the  University 
of  Michigan  submitted  some  testimony  to  the  Energy  and  Com- 
merce Committee  earlier  this  month.  And  on  a  blend  of— it  was  ac- 
tually not  just  the  United  States,  it  was  the  United  States  and 
Canada,  the  total  health  cost  component  of  a  North  American-built 
car,  from  the  Big  Three,  was  about  $1,086. 

Mr.  Schaefer.  My  colleague  was  right  on  the  nose,  then. 

Mr.  Maher.  That  was  a  University  of  Michigan  study,  but  they 
were  working  off  of  data  they  got  from  General  Motors,  Ford, 
Chrysler  and  many  parts  manufacturers  in  this  country.  And  in- 
cluding United  States  and  Canada. 

Mr.  Schaefer.  Let  me  ask  you  the  question,  taking  into  consider- 
ation that  and  the  benefits  our  American  workers  

Mr.  Maher.  By  the  way,  excuse  me,  I  would  like  to  make  it 
clear,  that  was  1990  data.  So  it  is  probably  worse  today. 

Mr.  Schaefer.  You  have  got  to  creep  up  on  this  microphone — 
these  Japanese  microphones.  Just  because  I  am  from  Colorado 
doesn't  mean  you  have  to  give  me  the  bad  mike.  You  didn't  deduct 
that  from  my  5  minutes,  Mr.  Chairman? 

Mr.  Dingell.  No,  I  did  not. 

Mr.  Schaefer.  What  was  my  question? 


All  right.  In  comparison  to  the  quality  of  care  that  our  American 
workers  get  from  your  plan,  do  you  have  any  idea  how  this  would 
compare  with  the  quality  of  care  the  Japanese  get? 

Mr.  Maker.  No.  And  I  think  the  quality  issue  is  a  very  impor- 
tant issue,  because  it  may  be  that  we  don't  like  the  Japanese 
health  care  system,  that  we  would  want  to  improve  upon  it.  But 
the  policjrmakers,  yourselves,  that  is  at  least  something  that  has  to 
be  taken  into  consideration  in  a  global  economy. 

I  heard  the  question  of  the  last  panel.  I  was  involved  for  12 
years,  sitting  on  the  other  side  of  the  table  from  these  gentlemen, 
both  in  the  United  States  and  Canada,  and  I  never  experienced  a 
situation  where  in  Windsor  the  employees  of  our  Canadian  oper- 
ations wanted  to  waive  their  coverage  and  opt  for  Blue  Cross/Blue 
Shield.  That  was  never  a  demand  we  faced. 

Not  that  the  Canadian  system  is  the  best  system.  I,  frankly,  don't 
think  it  is.  But  the  fact  is  that  nowhere  in  the  world  are  people 
trying  to  copy  our  system.  And  they  are  doing  some  things  right 
around  the  world.  And  we  shouldn't  try  to  copy  anybody's  system, 
but  we  should  scour  the  globe  and  try  to  pick  what  is  best  and  in- 
corporate it  in  our  system  and  try  to  be  the  best  in  this  country,  for 
quality  and  cost. 

Mr.  ScHAEFER.  I  always  look  at  the  Canadian  system — we  are 
talking  about  fewer  people  in  Canada  versus  the  United  States, 
and  just  incorporating  the  whole  doesn't  mean  it  would  totally 
work.  I  am  sure  parts  or  portions  of  it  will. 

Let  me  ask  you,  what  has  Chrysler  been  doing  to  try  to  control 
the  health  costs  in  managing  the  care  of  their  employees? 

Mr.  Maker.  I  would  like  to  think.  Congressman  Schaefer,  that 
we  have  probably  been  as  active  if  not  more  active  than  any  com- 
pany in  the  United  States.  We  were  the  first  company  to  have  a 
board  of  director's  level  committee  addressing  the  subject,  by  in- 
cluding both  the  Chairman  of  the  Board  of  our  company  and  the 
President  of  the  UAW  sitting  together  on  this  subject.  We  have 
well  over  50  percent  of  our  employees  enrolled  in  HMO's,  PPO's, 
exclusive  provider  networks.  We  have  kept  our  rate  of  cost  escala- 
tion at  around  8  percent  for  the  last  10  years  or  so,  well  better 
than  business  in  general.  I  have  got  to  tell  you,  we  have  got  a  very 
unuser  friendly  health  plan.  Our  people  have  to  jump  through  lots 
of  hoops  to  get  services. 

But  we  have  found  that  if  that  is  all  we  do,  we  are  not  going  to 
control  our  health  costs.  Because  for  every  dollar  we  may  save,  we 
may  get  $1.25  shifted  to  us  as  a  result  of  our  fragmented  system.  So 
we  have  to  develop  some  common  game  plan  in  this  country,  every- 
body pulling  in  the  same  direction,  maintaining  the  same  objec- 
tives of  maintaining  quality,  but  making  our  country  the  best  in 
terms  of  efficiency  and  quality. 

Mr.  Sckaefer.  Last  April  in  Colorado  I  held  a  health  care  fair  at 
which  I  had  hospitals,  doctors,  businesses,  everybody  that  has  any- 
thing to  do  with  health  care,  and  there  was  an  interesting  com- 
ment made  by  Bill  Coors,  the  President  of  Coors  Brewery,  located 
there  in  Colorado.  He  said  that  they  were  contemplating — and  they 
have  a  wellness  center — they  were  contemplating  saying  to  their 
employees,  if  you  go  through  this  wellness  center,  you  are  tested 
for  your  blood  pressure  and  your  cholesterol  and  everything,  and 


you  have  a  problem,  you  start  working  on  it,  and  we  will  pick  up 
the  total  health  care  costs.  If  you  don't  do  that  and  you  don't  show 
an  improvement,  then  the  health  care  cost  starts  to  be  reduced  by 
the  company  and  has  to  be  paid  by  the  employee. 

Is  this  a  possibility?  Is  this  being  done  anywhere? 

Mr.  Maker.  We  have  similar  arrangements  for  a  lot  of  our  em- 
ployees in  the  United  States.  We  are  a  big  believer  in  prevention, 
in  screening,  in  education  for  employees.  And  that  is  a  very  impor- 
tant element  of  an  overall  policy  for  this  country  and  for  any  indi- 
vidual business. 

But  like  a  lot  of  things,  like  tort  reform,  it  is  not  the  only  thing. 
But  it  is  a  very  important  thing  that  has  to  be  addressed. 

Mr.  ScHAEFER.  So,  in  other  words,  you  think  maybe  this  could  be 
built  into  an  eventual  solution? 

Mr.  Maker.  Yes,  I  do.  But  I  have  got  to  tell  you  that  going  down 
that  path  is  filled  with  hazard,  because  it  is  easy  to  pick  on  some 
things  like  smoking  and  alcohol  consumption,  but  mark  my  words, 
you  are  going  to  have  people  come  out  of  the  woodwork  who  tell 
you,  I  want  to  get  the  joggers  and  penalize  them  because  of  all  the 
damage  to  knee  joints  and  the  health  costs  they  are  causing.  The 
skiers  who  break  legs.  It  will  happen.  I  have  heard  it. 

Mr.  ScKAEFER.  We  have  not  only  breaking  legs  but  a  lot  more  se- 
rious things  happen  in  Colorado. 

Mr.  Chairman,  I  yield  back. 

Mr.  DiNGELL.  The  gentleman  from  Michigan,  Mr.  Upton. 

Mr.  Upton.  Thank  you,  Mr.  Maher.  I  appreciated  your  testimony 
earlier  this  month,  and  I  certainly  look  forward  to  today. 

Mr.  Farver,  believe  it  or  not,  I  have  been  in  Blissfield,  and  I  have 
been  to  your  facility,  and  it  is  amazing  to  me  to  see  the  costs  that 
you  have  shown  in  your  testimony,  which  is  about  $500  or  so  back 
in  the  early  1970's  per  employee.  It  is  almost  $6,000  today. 

What  is  the  average  cost  per  employee  that  Chrysler  pays  per 
employee  for  a  year?  It  is  not  even  in  the  neighborhood  of  $6,000. 

Mr.  Maker.  Well,  for  older  workers.  Congressman  Upton,  with  a 
family,  it  certainly  could  approach  that.  The  cost  

Mr.  Upton.  But  that  will  be  the  average  cost.  Some  will  ap- 
proach that. 

Mr.  Maker.  But  I  am  not  sure  what  the  average  age  of  your 
workforce  is.  But  if  you  happen  to  have  a  workforce  that  has  an 
above-average  age,  and  you  may  be  an  incredibly  fine  company  in 
doing  what  you  do,  under  the  U.S.  health  system,  if  you  are  com- 
peting with  someone,  the  luck  of  the  draw,  has  a  younger  work- 
force, that  person  has  an  advantage  over  you.  You  don't  have  that 
in  foreign  countries. 

That  is  one  of  these  policy  issues  that  I  think  has  to  be  consid- 
ered, is  that  of  proper  line  of  demarcation  in  competition,  the  age 
of  a  workforce.  Are  you  going  to  penalize  one  versus  the  other? 

But  you  could  pay  $6,000  for  a  family  for  coverage. 

Mr.  Upton.  Is  that  one  of  the  reasons  you  have  gone  up,  because 
you  have  been  such  a  good  stable  business  in  Blissfield  for  46 

Mr.  Farver.  As  I  mentioned,  we  do  have  many  employees  that 
have  been  with  the  company  45,  46  years.  It  is  not  uncommon  to 
have  2  and  3  generations  working  in  our  company,  and  they  stayed 


a  long  time.  We  have  had  a  lot  of  retirees  in  the  last  5  years.  The 
workforce  is  shifting  and  changing  to  a  younger  workforce.  The  av- 
erage is  probably  45  years  old  at  this  point,  whereas  maybe  5,  10 
years  ago,  it  was  50,  55  years  old. 

But  also  I  think  our  benefits  are  far  superior  to  most.  On  the 
union  side,  it  is  still  first  dollar  coverage,  full  hospitalization,  opti- 
cal, dental,  prescription.  We  take  good  care  of  our  people. 

Mr.  Upton.  Is  your  specific  plan — do  you  have  a  small  group 
health  insurance  plan  or  something  in  that  neighborhood,  looking 
for  a  specific  break? 

Mr.  Farver.  We  have  two  specific  plans.  Up  until  around  5  years 
ago  we  were  all  under  the  same  plan,  total  hospitalization.  Because 
of  costs,  we  had  to  go  to  an  80-20  situation  for  our  salaried  work- 
force. So  now  we  have  two  distinct  plans.  For  cost  savings  reasons. 
And  we  are  always  looking  to  reduce  those  costs. 

We  just  went  through  an  exercise,  in  fact  we  just  wrapped  it  up 
last  week,  looking  at  another  provider,  with  some  substantial  sav- 
ings, but  unfortunately  their  numbers  went  1  to  99.  After  99,  you 
wouldn't  qualify  for  the  plan.  Being  that  we  had  more  than  that, 
we  could  not  qualify  for  the  plan.  We  asked  them  to  look  at  two 
specific  groups,  the  retirees  as  well  as  the  working  employees,  if 
they  would  consider  two  plans.  They  wouldn't  touch  it. 

So  we  are  constantly  looking  to  reduce  costs.  We  are  making  our 
employees  aware  of  what  costs  they  have  used  on  a  monthly  basis 
so  they  can  be  aware  of  it  and  try  to  curb  abuses. 

Mr.  Upton.  You  have  a  number  of  facilities,  as  I  recall,  around 
the  country,  is  that  right? 

Mr.  Farver.  We  have  three  facilities  active  right  now,  one  in 
Michigan,  two  in  Indiana.  The  third  in  Indiana  we  closed  2  years 
ago  and  moved  back  to  Michigan,  which  is  a  twist  for  most.  Usual- 
ly it  is  going  the  other  way. 

Mr.  Upton.  Have  you  noticed  between  States  a  large  difference 
or  any  difference  between — your  graph,  I  expect,  is  for  all  employ- 

Mr.  Farver.  That  is  correct.  That  is  an  average.  It  could  be  less 
depending  on  single  coverage.  Obviously,  family  coverage  can  run 
as  high  as  $60  a  month.  This  is  an  average.  So  it  could  be  higher  or 

Mr.  Upton.  I  appreciate  your  attendance  this  morning.  Thank 

I  yield  back. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman. 
The  gentleman  from  Michigan,  Mr.  Levin? 

Mr.  Levin.  Well,  Mr.  Maher,  I  had  a  chance  to  be  on  the  plane 
this  morning,  so  I  don't  need  to  burden  you  with  any  questions. 

I  do  think  it  is  a  good  idea  that  we  hear  from  a  mix  of  the  busi- 
ness community,  Mr.  Chairman,  as  you  are  doing.  And  as  we  look 
at  this  issue,  we  look  at  the  needs  of  smaller  business  as  well  as 
larger,  so  that  we  don't  end  up  providing  an  answer  that  simply 
shifts  the  cost  from  larger  business  to  smaller  business.  That  isn't 
going  to  accomplish  very  much,  if  anything.  In  fact,  it  may  set  us 
back.  So  I  think  the  two  of  you,  in  a  sense,  represent  the  challenge. 

Thank  you  very  much. 


Mr.  DiNGELL.  Gentlemen,  the  Chair  once  again  thanks  you  for 
your  helpful  assistance.  Mr.  Schaefer? 

Mr.  Schaefer.  If  you  will  permit  me,  Mr.  Chairman,  I  would  like 
to  ask  one  other  question  of  Mr.  Maher. 

I  think  the  facts  show  that  in  other  industries  throughout  the 
country,  the  growth  rate  is  approximately  14  percent.  Yours  is  only 
8.  That  is  interesting.  What  are  you  doing  different? 

Mr.  Maher.  Well,  as  I  mentioned.  Congressman  Schaefer,  I  hon- 
estly believe  we  have  been  at  this  a  lot  longer  

Mr.  Schaefer.  You  recognize  the  problem? 

Mr.  Maher  [continuing].  Than  other  companies,  because  it  has 
been  a  big  problem,  and  also  we  had  a  major  management  change 
in  our  company  in  the  late  1970's.  We  had  the  opportunity  at  that 
time  to  literally  scour  the  operations.  In  looking  for  pockets  of 
problems,  this  one  obviously  jumped  into  very  clear  visibility.  And 
have  been  working  on  it  ever  since. 

Mr.  Schaefer.  You  were  one  of  the  pioneers,  in  other  words,  in 
recognizing  this,  and  I  applaud  you  for  that.  Thank  you. 

Mr.  DiNGELL.  Gentlemen,  I  am  curious.  We  have  many  different 
reform  plans  suggested  to  repair  our  system.  One  is  to  continue  the 
current  plan.  One  is  to  shift  to  essentially  a  pay-or-play  plan,  in 
which  the  employer  either  offers  a  given  level  of  benefits  or  pays  a 
given  level  of  taxes  to  provide  those  services.  Or  we  have  a  nation- 
al health  insurance  plan  with  a  single  payer.  That  single  payer 
could  have  his  mechanism  of  providing  services  in  an  array  of  dif- 
ferent fashions. 

With  regard  to  the  manner  in  which  the  country  should  address 
this  problem,  what  is  your  preference  with  regard  to  the  mecha- 
nism of  payment?  Should  we  pay  by  payroll  tax?  Should  we  pay  by 
some  other  mechanism?  Should  we  pay  from  general  revenues? 
Should  we  have  a  specific  dedicated  tax,  a  value  added  tax,  or 
something  of  that  kind  to  pay  for  the  costs  of  these  kinds  of  serv- 

Gentlemen,  I  am  not  asking  you  to  speak  on  behalf  of  your  com- 
pany, but  just  indicate  your  personal  preference.  If  you  can  or 
desire  to,  express  the  views  of  your  companies. 

Mr.  Maher.  Mr.  Chairman,  we  testified  on  several  occasions 
that,  rather  than  picking  out  any  particular  plan,  we  think  we 
have  to  set  up  the  objectives  of  what  you  want  a  health  system  to 
provide.  Those  objectives,  we  believe,  should  be:  (1)  coverage  for  all 
citizens;  (2)  a  process  to  control  cost,  clear  process  to  control  cost; 
(3)  a  process  to  assure  that  the  cost  of  the  system  is  spread  equita- 
bly across  the  economy  so  that  you  don't  burden  inappropriately 
any  particular  sector;  and  (4)  that  you  operate  in  a  context  of  con- 
tinuous quality  improvement. 

Then  you  say,  all  right,  how  do  you  accomplish  this?  How  do  you 
finance  it?  And  we  see  as  a  company  1  of  2  ways  of  proceeding. 
Both  of  them  would  have  the  common  ingredients  of  having  health 
care  delivery,  private-sector  oriented,  competitive,  pluralistic  deliv- 
ery systems. 

But  in  terms  of  financing  them,  you  could  finance  them  either  by 
building  on  the  current  employer  base  model,  with  public  coverage 
available  for  the  poor  and  the  elderly,  with  employers  being  re- 
quired— having  two  choices,  one  to  offer  health  coverage  to  people. 


or  two,  in  lieu  of  that,  pay  some  type  of  a  payroll  tax  so  that  they 
are  contributing  in  some  way  to  the  financing  of  health  care,  there- 
by enabling  people  to  enroll  in  some  tax-financed  system. 

But  both  the  public  and  private  sectors  operating  pursuant  to  the 
common  rules,  with  a  budget  established  for  the  system,  with  fees 
determined  hopefully  through  some  multilateral  way  and  not  dic- 
tated from  Washington.  But,  once  those  fees  are  determined,  have 
them  binding  on  both  the  public  and  private  sector  to  avoid  cost 

The  other  method  of  financing  would  be  to  finance  it  through  the 
tax  system.  And  I  want  to  emphasize  there  is  a  huge  difference  be- 
tween having  a  tax-financed  program  and  a  government-run  pro- 
gram. For  example,  the  Federal  Employees  Health  Benefit  Plan 
was  ironically  just  written  up  by  Stewart  Butler  of  the  Heritage 
Foundation  as  a  model  plan,  as  an  example  of  how  you  can  have 
competition  among  plans,  and  that  is  fully  tax  financed. 

Mr.  DiNGELL.  It  also  goes  up  at  a  high  rate  of  speed  every  year. 

Mr.  Maker.  That  is  because  there  is  no  overall  process  to  control 
costs.  So  my  only  point  is  that  you  can  have  a  tax-financed  plan 
with  lots  of  choices.  I  could  make  an  argument  that,  for  example, 
for  years  one  of  the  problems  with  the  Medicare  program  and  a 
problem  with  the  Canadian  health  care  system  is  that  it  is  replete 
with  choice.  You  have  unfettered  choice. 

And  so  the  irony  is  that  we  hear  a  lot  of  discussion  now  about 
organized  systems  of  care  and  coordinated  care,  all  things  that 
make  a  lot  of  sense  in  my  company's  view,  but,  by  the  way,  the 
only  way  they  work  is  constraining  choice.  And  that  is  not  all  bad. 
It  is  not  necessary  to  pick  your  doctor  out  of  the  yellow  pages. 

We  think  we  can  support  either  type  of  system,  either  a  tax-fi- 
nanced system  or  one  that  is  built  on  the  employer-based  model 
action  as  long  as  they  met  those  common  objectives  of  cost  control, 
universal  access  and  quality. 

In  terms  of  if  you  had  a  tax-financed  system,  you  say,  what  is  the 
best  tax?  There  are  obviously  many  ways  to  do  this. 

Mr.  DiNGELL.  What  is  the  best  one  from  the  standpoint  of  com- 

Mr.  Maker.  My  company  has  long  supported  some  form  of  either 
a  business  transfer  tax  or  a  variant  of  a  value-added  tax  because  of 
its  ability  to  disperse  costs  through  the  economy.  When  you  consid- 
er that  the  current  health — you  know,  a  lot  of  people  say,  wait  a 
minute,  that  impacts  prices.  The  current  health  care  system  is 
largely  financed  by  employers,  and  if  anyone  doesn't  think  that  is 
almost  the  same  thing  as  a  sales  tax,  they  are  not  a  student  of  this 
issue.  Businesses,  one  of  the  ways  they  recover  their  costs  is  to  add 
to  prices.  And  that  is  the  same  thing  as  a  sales  tax. 

My  sense  is  that  it  may  not  be  appropriate  to  rely  exclusively  on 
one  single  tax  vehicle.  But  that  is  one  that  my  company  is  support- 
ing. We  are  also  a  member  of  the  National  Leadership  Coalition  for 
Health  Care  Reform,  which  has  supported  a  comprehensive  health 
reform  strategy,  but  one  which,  for  people  in  the  workplace,  builds 
on  what  you  characterize  as  a  pay-or-play  model.  That  obviously 
relies  to  a  certain  extent  on  payroll  taxes  as  a  way  of  financing 
health  care. 


And  again,  that  is,  in  fact,  how  a  lot  of  health  care  is  financed  in 
the  country  today.  Because,  to  the  extent  that  an  employer  buys 
health  insurance,  that  clearly  is  part  of  an  overall  compensation 
package  and  in  essence  functions  somewhat  like  a  payroll  tax.  I 
will  just  stop  there. 

Mr.  DiNGELL.  Mr.  Farver,  what  are  your  comments,  please? 

Mr.  Farver.  I  would  agree  with  Mr.  Maher  on  the  majority  of 
his  points.  I  don't  think  it  is  one  perfect  system,  obviously.  I  think 
a  lot  of  focus  needs  to  be  put  on  the  prevention  and  maintenance  of 
health  care  early  on  so  we  don't  get  these  people  into  the  system 
early  on  in  years  so  it  becomes  costly. 

Also,  I  feel  that  right  now  the  system  is  really  not  fair  and  equi- 
table. Certain  people  paying,  as  was  given  earlier  by  our  gentleman 
from  UAW,  I  believe,  people  that  are  paying  health  care  costs  end 
up  paying  a  premium  for  those  that  can't  pay,  doctors  charge  more, 
et  cetera. 

I  think  we  need  to  establish  clear  goals,  levels  of  service  and  also 
cost  controls.  Like  any  business,  we  are  required  every  vear  to 
reduce  our  cost  from  continuous  improvement  efforts.  I  don  t  think 
you  are  seeing  that  in  the  health  care  system.  It  is  a  situation 
where  the  costs  keep  escalating,  and  nobody  is  doing  anything 
about  it.  You  have  no  control  over  that.  You  have  to  go  to  the 
doctor.  You  have  to  go.  You  have  to  pay. 

It  needs  to  be  a  more  competitive  situation.  That  is  where  maybe 
the  public  and  private  partnerships  can  be  formed. 

It  may  even  be  better  to  go  to  more  localized.  Every  community  I 
know  has  different  needs  and  different  requirements.  Maybe 
through  local  networks. 

I  am  not  an  expert  on  this  by  any  means,  so  these  are  strictly 
opinions,  but  I  know  in  our  community  we  do  have  good  health 
care  in  the  community.  If  we  can  get  into  a  preventive  mode  and 
get  a  fair  cost  throughout  the  community,  so  that  everybody  pays 
their  fair  share,  businesses  pay  their  fair  share — I  think  businesses 
are  overtaxed  already  as  a  small  business  owner,  so  I  don't  know 
that  that  is  really  the  way  to  go. 

Mr.  DiNGELL.  You  just  raised  a  point,  the  fact  that  business  is 
overtaxed,  and  the  payroll  tax  system  is  one  which  is  particularly 
repressive  to  business  from  the  standpoint  of  dealing  with  exports 
and  foreign  competitors,  or  dealing  with  importers.  Obviously  the 
union  management  agreements  are  becoming  extremely  costly  and 
obviously  impacting  the  competitiveness  of  American  firms. 

The  question  is  then  whether  something  like  a  broad-based  tax 
like  a  value-added  tax  is  going  to  be  the  mechanism  that  would 
deal  with  our  competitive  problems  compared  to  foreign  competi- 
tion and  put  us  in  a  better  position?  We  are  spending  $1,000  a  car 
and  more. 

Mr.  Maher.  Mr.  Chairman,  as  I  indicated,  my  company  is  very 
sympathetic  to  value-added  type  taxes.  But  I  must  add  that  at  least 
our  major  competitors  in  Germany  and  Japan  are  the  major  fin- 
ancers  of  their  country's  health  care  cost,  and  they  happen  to  fi- 
nance it  through  a  payroll  tax  system.  They  have  the  advantage, 
however,  of  having  those  costs  be  infinitely  less  than  our  cost.  And 
I  also  don't  know,  maybe — I  am  not  sure  of  this  at  all — whether 
any  of  those  taxes  are  rebated  for  exports.  I  don't  believe  they  are. 


I  wanted — if  I  could  to  sort  of  reemphasize  the  point  regarding 
the  difference  between  government  run  and  tax  financed,  because 
this  issue  is  unfortunately  getting  too  politicized  for  the  importance 
that  it  has  to  the  country.  And  there  is  a  lot  of  discussion  about 
equating  a  tax  finance  with  some  monolith  government  program. 

Notwithstanding  the  fact,  and  it  is  ironical,  that  the  Medicare 
program  which  has  a  lot  of  problems  still  is  very  popular — and  I 
doubt  there  is  a  lot  of  people  who  would  introduce  bills  to  repeal 
the  Medicare  program  because  they  found  out  it  was  tax  fi- 
nanced— ^but  you  can  have  

I  mean.  Senator  Kerry,  for  example,  has  introduced  his  bill,  one 
of  the  several,  and  while  it  would  have  a  tax-financed  health  care 
system,  it  would,  in  essence,  get  the  Government  out  of  running  it. 
It  would  use  the  Government  solely  to  collect  money  and  then  dis- 
tribute it  and  have  health  care  delivery  as  we  have  today  through 
private-sector-oriented  delivery  systems,  all  of  which  had  to  com- 
pete in  each  State  with  one  publicly  run  plan.  It  would  be  one 
public  plan  in  each  State.  Then  everyone  else  would  be  eligible  to 
receive  the  same  payments  that  the  public  plan  would,  and  they 
would  compete. 

So  if  the  concern  here  is  that  we  want  to  have  more  competition 
in  the  delivery  system,  you  can  have  that  in  a  tax-financed  system. 
The  Medicare  program  could  be  transferred  to  that — transformed 
to  that  type  of  a  system. 

So  we  should  put  our  emphasis  first  on  what  do  we  want?  What 
is  the  architecture  of  this  product  that  has  to  cover  everybody?  It 
absolutely  must  have  the  capacity  to  control  cost,  and  it  has  to 
have  some  structure  to  assure  that  you  don't  save  your  costs 
through  skimping  on  quality. 

Mr.  DiNGELL.  Mr.  Farver,  what  are  your  comments? 

Mr.  Farver.  I  agree.  Quality  is  the  main  issue  here,  and  the  cost 
controls,  as  I  said  earlier.  It  is  like  any  business.  You  have  to 
remain  competitive.  And  if  you  don't  have  any  controls  to  keep 
costs  from  going  up,  they  will  continue  to  go  up. 

So  I  really  don't  have  a  lot  of  comment  on  it.  I  really  need  to 
think  more  on  the  subject.  It  is  pretty  far-reaching. 

Mr.  DiNGELL.  Mr.  Maher,  you  served  with  considerable  distinc- 
tion as  the  co-chairman  of  the  Governor's  Task  Force  on  Health 
Care.  That  was  created  because  of  the  concern  of  over  a  million 
Michigan  residents  without  insurance.  The  Task  Force  warned  that 
the  problems  would  get  more  difficult  in  the  1990's.  It  is  now  IV2 
years  since  the  Task  Force  presented  the  Governor  with  its  conclu- 
sions. Can  you  cite  any  progress  that  has  been  made  with  regard  to 
either  implementing  those  recommendations  or  reducing  or  elimi- 
nating the  problems  the  Task  Force  identified? 

Mr.  Maher.  Mr.  Chairman,  I  think  there  has  been  some  progress 
in  terms  of — one  of  the  recommendations  of  the  Task  Force  was  to 
develop  some  grassroots  support  for  the  recommendations  of  the 
Task  Force  for  purposes  of  any  legislation  that  might  be  required.  I 
know  that  through  the  offices  of  Michigan  State  University,  that 
type  of  grassroots  support  building  is  underway. 

However,  meeting  the  health  care  needs  of  the  unfortunate  in 
this  State  is  largely  dependent  on  the  economy  of  the  State.  And 
since  the — that  Task  Force  concluded  its  business,  the  economy  of 


the  State  of  Michigan  has  not  fared  too  well,  to  say  the  least,  which 
has  made  it  very  difficult  to  accomplish  these  objectives. 

From  the  standpoint  of  the  business  community's  participation 
in  that  Task  Force,  one  of  our  concerns  was  the  cost-shifting  issue 
that  I  mentioned  during  my  remarks.  And,  unfortunately,  that 
cost-shifting  issue  is  continuing  to  exacerbate  as  more  and  more  of 
the  general  assistance  people  here  in  Michigan  lose  their  eligibility 
for  health  care  coverage. 

That  does  not  immunize  them  from  illness.  They  still  get  ill. 
When  they  get  sick  enough,  they  get  treated  in  a  hospital,  and 
those  costs  get  passed  on  to  private  payers. 

So  my  company  is  continuing  to  work — even  though  the  Task 
Force  is  no  longer  in  business,  I  stay  in  touch  with  the  people  at 
Michigan  State  University  and  try  to  do  whatever  I  can  to  continue 
to  build  grassroots  efforts  here. 

Mr.  DiNGELL.  Mr.  Farver,  do  you  have  any  comments? 

Mr.  Farver.  No.  I  think  on  the  overall  issue,  as  long  as  we  can 
provide  a  plan  which  is  fair  and  equal  to  everyone,  and  ultimately 
gives  everyone  health  care — I  think  it  is  sad  when  people  work  all 
their  life,  they  retire,  and  their  pension  doesn't  even  cover  their 
health  care  premiums.  And  the  worry  of  whether  they  are  going  to 
be  able  to  pay  their  health  bills  is  enough  to  make  them  sick.  I 
think  it  is  a  sad  state  of  affairs  when  people  work  their  whole  life 
to  retire  to  a  better  way  of  living,  and  it  is  gone  because  of  health 
care  costs. 

I  would  be  in  favor  of  funding  that  type  of  program,  as  long  as 
there  is  some  relief  to  the  business,  and  that  we  can  plan  and  know 
what  our  costs  will  be.  If  we  know  what  the  costs  will  be,  at  least 
we  can  plan  and  budget  for  them  and  try  to  remain  competitive 
that  way.  The  way  it  is  now,  we  have  no  idea  what  it  is  going  to  be 
this  year,  next  year  or  in  the  future.  And  it  is  hard  to  run  a  busi- 
ness that  way. 

Mr.  DiNGELL.  Mr.  Schaefer,  do  you  have  a  question  of  Mr. 

Mr.  Schaefer.  Yes.  Both  Mr.  Maher  and  Mr.  Farver. 

Looking  at  the  graph  you  presented,  that  health  care  costs  are 
going  up,  it  seems  to  create  a  situation  between  small  business  and 
big  business  where  people  like  Chrysler,  who  have  more  employees 
and  are  better  able  to  negotiate  with  insurance  companies  due  to 
the  numbers,  could  help  hold  those  costs  down.  Whereas  the  small 
business — and  I  came  out  of  the  small  business  world  so  I  under- 
stand many  of  the  problems  you  face,  you  have  to  individually, 
with — how  many  employees  do  you  have? 

Mr.  Farver.  250. 

Mr.  Schaefer.  Still  considered  a  small  business — ^but  you  have  to 
negotiate  individually  with  a  carrier. 
Mr.  Farver.  That  is  correct. 

Mr.  Schaefer.  Therefore,  you  do  not  have  the  power,  so  to  speak, 
and  therefore  your  rates  may  be  not  comparable.  And,  in  many 
cases — I  am  not  saying  this  to  you  two  gentlemen — ^but  in  many 
cases  the  large  business  blames  the  small  business  for  rising  health 
care  costs,  and  the  small  business  says,  well,  big  business,  you  get 
the  better  deal  than  I  get  out  there. 


From  your  perspective,  the  organizations  like  NFIB  or  an  insur- 
ance pool  which  would  buy  collectively,  is  this  possible  today,  or  is 
it  an  idea  that  you  could  

Mr.  Farver.  I  think  it  is  a  very  viable  option  that  communities 
pool  together,  possibly,  to  try  to  bring  those  rates  down.  At  least  it 
will  keep  them  under  control. 

In  our  county  we  have  a  number  of  small  manufacturing  and 
family-owned  businesses,  and  I  know  every  one  of  those  has  differ- 
ent problems,  and  they  are  all  facing  the  same  thing,  and  they  are 
all  networking  and  pulling  together.  That  is  one  very  viable  way  to 
address  the  problem. 

Mr.  ScHAEFER.  I  know  back  in  1984  or  1985,  somewhere  in  there, 
we  had  this  unavailability  of  insurance  for  municipalities,  fire  de- 
partments. We  were  all  having  tremendous  problems  on  how  to 
insure  ourselves.  And  therefore  the  insurance  pools  were  created. 

The  difference  I  see  in  your  business  is  that  you  are  manufactur- 
ing widgets,  and  somebody  else  is  manufacturing  some  other  com- 
modity, and  the  danger  point  of  somebody  getting  ill  in  one  busi- 
ness may  be  different  than  the  other.  Therefore,  that  would  create 
a  tremendous  problem,  or  you  are  not  talking  about  CPA's  as  a 
whole  or  municipalities  as  a  whole.  Is  there  a  way  of  working 
around  this  if  we  think  about  this  type  of  thing? 

Mr.  Farver.  I  think  there  is  always  a  way  if  there  is  the  will, 
obviously.  But  no,  it  needs  to  be  studied. 

I  understand  what  you  are  saying,  the  chemical  industry  versus, 
let's  say,  say  small  manufacturing  industry.  There  are  different 
things  that  can  cause  problems.  But  I  would  think  you  would  need 
to  look  at  what  the  experience  rate  has  been  at  each  one  of  those 
industries,  put  those  together,  run  the  numbers,  average  them  out, 
and  see  what  was  what. 

To  try  and  get  an  insurance  carrier  to  do  that  would  be  another 
thing.  Maybe  the  answer  is  communities  start  their  own  insurance 
companies,  their  own  groups  to  administer  the  plan  on  a  local 
basis.  Put  the  power  back  to  the  local  people  to  administer,  and 
also  then  they  would  have  control  over  their  experience. 

Mr.  Maker.  Congressman  Schaefer,  on  that  point,  one  of  the 
things — and  I  don't  have  the  data  here  in  terms  of — one  of  the  rea- 
sons that  our  number  was  8  percent  is  that  it  reflects  a  certain 
amount  of  cost  shifting  to  employees  and  retirees.  That  tends  to 
impact  that  number. 

The  COSE  group  in  Cleveland,  that  is  a  very  good  coalition  of 
small  employers — coalition  for  something,  COSE.  I  have  heard 
them  as  low  as  IOV2  percent.  I  have  heard  1  percent  say  15.  But 
let's  say  it  is  IOV2  percent.  The  point  to  remember,  though,  is  that 
is  still  2  to  3  times  CPI,  growth  in  the  economy. 

And  to  the  extent  that  we,  starting  where  we  are,  already  so 
much  more  expensive  than  the  rest  of  the  world,  and  continue  our- 
selves to  let  health  care  grow  at  two  to  three  times  the  rate  in  the 
economy,  what  that  is  doing  is  slowly  absorbing  the  resource  of  this 
Nation,  reallocating  them  to  other  needs,  when  there  is  already  a 
consensus  today,  whether  it  is  from  Dick  Darman  to  the  most  liber- 
al guy  around,  saying,  we  are  spending  too  much.  We  have  got  to 
figure  a  way.  There  is  no  reason  in  the  world  why  a  Nation  as  wise 
as  this  one  is  has  to  spend  43  percent  more  per  capita  than  the 


second  most  expensive  country  on  earth  to  meet  our  Nation's 
health  needs. 

We  have  got  the  smarts  to  do  it  for  less  than  what  we  are  spend- 
ing now.  So  we  should  not  get  ourselves  hooked  on  a  system  that 
aggregates  or,  again,  bet  the  farm  on  aggregating  small  businesses 
so  they  can  improve  their  lot  in  life  to  the  lot  of  larger  business, 
most  of  whom  are  griping  about  health  cost. 

So  this  is  a  broader  problem.  All  of  these  things  make  sense,  but 
they  all  have  to  be  incorporated  in  a  much  more  comprehensive 
strategy  to  meet  the  macro  objectives. 

Mr.  ScHAEFER.  One  last  question,  Mr.  Maher,  and  a  follow-up  on 
the  chairman's  initial  question.  The  Task  Force  that  you  were  on 
created  by  Governor  Milliken  and  continued  by  Governor  Blan- 

Mr.  Maher.  Governor  Blanchard  started  it. 

Mr.  Schaefer.  Anjrway,  are  other  States  doing  this  type  of 
thing?  And  were  some  of  the  answers  you  pulled  out  here  about  a 
crisis  in  the  State  of  Michigan,  should  these  be  repeated  in  other 
States?  Just  a  comment  on  that. 

Mr.  Maher.  There  have  been  a  number  of  initiatives.  Congress- 
man Schaefer,  in  many  States.  In  fact,  I  have  attended  meetings 
where  the  States  get  together  to  pool  their  ideas.  The  League  of 
National  Governors  Association  has  taken  an  active  interest  in 

And  while  on  the  one  hand  I  am  a  big  believer  in  local  initia- 
tives, as  an  employer,  with  operations  in  all  States,  I  shudder  to 
think  that  we  will  have  50 — not  to  mention  maybe  northern  Cali- 
fornia to  something  different  in  southern  California — different 
strategies.  That  would  be  very,  very  complex. 

That  is  not  to  say  that  there  can't  be  variations  between  some 
sort  of  master  plan  with  variants  but  all  sort  of  generally  pulling 
in  the  same  objective.  We  don't  need  a  cookie  cutter. 

Mr.  Schaefer.  Are  you  finding  the  Michigan  problems  are  re- 
peated in  Mississippi  or  Kansas?  Are  we  coming  down  to  the  same 
basic  problem? 

Mr.  Maher.  Yes.  First,  everybody — sort  of  the  core  problem,  ev- 
erybody confronts  the  cost  problem.  Some  States  are  more  fortu- 
nate than  others.  Some  States  have  tradition.  This  State  has  a  tra- 
dition, I  think,  more  of  a  caring  tradition.  We  have  a  lower  overall 
uninsured  rate  in  this  State  than  our  surrounding  States. 

It  is  the  best  of  a  bad  lot,  let's  say.  This  is  not — on  one  end  it  is 
complex,  but  it  is  not  complex.  We  don't  have  a  process  to  control 
costs,  and  therefore  we  shouldn't  be  surprised  that  all  50  States, 
notwithstanding  the  fact  they  have  got  a  lot  of  smart  people  in 
them,  can't  control  them. 

Mr.  Schaefer.  Some  of  the  more  rural  States  have  a  problem. 

Mr.  Maher.  Right.  I  contrast  this  with  defense.  We  are  spending 
5  percent  of  our  GNP  on  defense;  Germany,  2  percent;  Japan,  1 
percent.  Citizens  around  the  country  look  around  the  world.  They 
know  their  tax  dollars  support  defense.  They  want  real  reductions 
in  defense  spending. 

Obviously,  there  is  local  pockets  of  interest,  understandably.  I 
don't  want  my  base  closed,  whatever.  Citizens  want  real  defense 
spending,  and  they  are  going  to  get  it. 


Contrast  that  with  health  care.  You  look  around  the  world.  We 
are  43  percent  more  than  the  second  most  expensive;  14  percent  of 
our  GNP  versus  6  in  Japan  and  8  in  Germany.  People,  the  consen- 
sus is,  want  lower  cost.  Can't  do  it. 

Mr.  ScHAEFER.  It  comes  down  to  cost  or  quality. 

Mr.  Maher.  But  it  tells  you  something  that  in  defense  at  least 
there  is  a  process  to  get  it  done.  In  health  care,  notwithstanding 
the  will  of  the  citizens,  it  can't  get  done.  That  tells  you  you  need  to 
develop  a  process. 

Mr.  ScHAEFER.  Thank  you,  sir. 

Mr.  DiNGELL.  Mr.  Farver,  I  was  looking  at  the  chart  you  submit- 
ted to  us.  In  1968,  Blissfield  spent  about  $400  or  $500  per  employee 
for  health  care.  Today  in  1992,  you  are  projecting  your  cost  just 
short  of  $6,000  per  employee.  That  is  about  $5,500  more.  Is  that 

Mr.  Farver.  That  is  correct. 

Mr.  DiNGELL.  Do  you  have  any  projection  as  to  the  future  level  of 
cost  increases? 

Mr.  Farver.  If  they  are  as  they  have  been  historically  in  the  last 
10  years,  we  will  look  at  10  to  15  percent  per  year.  We  will  stay  in 
business,  whatever  it  takes.  Once  again,  it  puts  the  burden  on  the 
employee  more  so  than  the  employer. 

Mr.  DiNGELL.  I  visited  the  farmers,  and  as  I  traveled  around  talk- 
ing to  them,  one  of  the  things  they  always  brought  out  is  the  latest 
Blue  Cross  bill.  Do  you  have  in  Blissfield  an  insurance  plan? 

Mr.  Farver.  We  buy  the  insurance  plan.  We  are  self-insured  on 
Workmen's  Comp. 

Mr.  DiNGELL.  Mr.  Maher,  ,you  are  essentially  self-insured  at 

Mr.  Maher.  Yes. 

Mr.  DiNGELL.  You  use  folks  like  Blue  Cross  to  provide  the  admin- 
istrative services,  is  that  right? 
Mr.  Maher.  Yes. 

Mr.  DiNGELL.  I  guess,  gentlemen — I  note  that  the  United  States 
has  some — some  1,100 — 1,500  different  health  care  plans.  I  was 
over  in  Canada  talking  to  people  at  Canadian  hospitals,  and  I  was 
in  this  country  talking  to  U.S.  hospital  people. 

One  day  we  visited  six,  four  in  the  United  States,  two  in  Canada. 
We  asked  the  U.S.  hospitals  how  many  people  they  had  in  their 
billing  offices  to  deal  with  billing.  They  said  50  to  60. 

We  asked  the  Canadian  hospitals  of  identical  size,  600  beds,  how 
many  they  had  dealing  with  billing.  They  said,  "We  have  between 
three  and  four."  Are  there  efficiencies  that  can  be  achieved  by  re- 
ducing the  number  of  plans  with  which  we  are  blessed  or  cursed  in 
this  country? 

Mr.  Maher.  No  question  about  it,  Mr.  Chairman.  The  physicians 
of  this  country  very  properly  talk  about  what  they  call  the  hassle 
factor,  and  it  is  not  only  a  large  number  of  insurance  companies,  it 
is  the  fact  they  all  have  their  own  different  rules. 

My  company,  for  example,  has  lots  of  different  rules  that  we 
think  make  sense  to  help  control  costs,  but  it  generates  another 
rule  book  that  thousands  of  doctors  in  southeastern  Michigan  have 
to  have.  It  complicates  the  back-offs  of  doctors,  of  hospitals. 


Some  physicians,  understandably,  find  it  intrudes  in  their  abiUty 
to  minister  the  health  needs  of  patients.  Not  that  sound  cost  con- 
trol is  not  important,  but  it  would  be  better  if — again,  there  it  was 
more  coordinated,  so  the  physicians  and  hospitals  in  this  country 
could  spend  the  great  bulk  of  their  resources  meeting  health  care 
needs  of  people  rather  than  jumping  through  hoops  by  all  kinds  of 
thousands  of  different  payers. 

Mr.  DiNGELL.  Those  hoops  are  expensive,  are  they  not?  All  the 
different  rules  they  have  to  meet  and  all  the  different  folks  they 
have  filling  out  forms  and  all  the  different  forms  they  have  to  fill 
out  for  all  the  different  people  are  enormously  costly  and  wasteful, 
are  they  not? 

Mr.  Maker.  You  are  correct.  I  am  pleased  to  say  there  appears 
to  be  some  bipartisan  understanding  of  that  issue  and  work  to  try 
to  address  it.  But  it  is  a  huge  problem,  and  I  can  understand  and 
sympathize  with  the  physicians  and  hospitals  in  this  country  when 
they  make  the  fuss  they  do  about  the  hassle  factor. 

Mr.  DiNGELL.  The  ordinary  citizens  have  to  confront  it,  and  the 
people  who  pay  the  bills  have  to  pay  the  cost  of  all  these  people 
that  contribute  nothing. 

Mr.  Maker.  Mr.  Chairman,  it  is  too  bad  what  happened  to  cata- 
strophic, because  all  Congress  and  the  President  have  to  do  is  look 
at  the  Medicare  program.  If  you  were  going  to  get  out  a  clean  piece 
of  paper  and  write  a  health  policy  for  the  elderly  of  this  country,  I 
don't  think  you  would  write  it  with  the  thought  in  mind  that  any 
person  with  my  means  would  have  to  go  out  and  buy  another  in- 
surance policy  to  cover  what  your  plan  didn't  cover,  and  that  is 
what  the  seniors  of  this  country  have  to  do. 

That  adds  complexity  for  them,  for  their  doctors,  for  their  hospi- 
tals; confusion  for  family  members  that  work  with  older  parents  in 
filling  out  forms,  and  deciding  who  gets  what  bill.  That  is  a  classic 

Mr.  DiNGELL.  Well,  this  committee,  as  both  Mr.  Schaefer  and  Mr. 
Upton  can  testify,  has  been  very  active  in  looking  at  fraud,  waste, 
abuse  and  mismanagement  in  the  so-called  supplemental  plans 
that  we  have  for  senior  citizens.  And  the  Congress  adopted  protec- 
tions as  a  result  of  this  subcommittee's  activities. 

Gentlemen,  you  have  been  here  for  a  long  time.  We  thank  you 
both  for  your  assistance.  We  appreciate  it.  We  thank  you,  both  gen- 
tlemen, for  your  assistance. 

The  Chair  announces  our  next  witness  will  be  Representative 
David  Hollister.  David  HoUister  is  the  chairman  of  the  Appropria- 
tions Subcommittee  that  deals  with  matters  in  the  Michigan 
House,  is  an  expert  who  has  appeared  before  this  subcommittee  on 
a  number  of  occasions.  His  testimony  has  always  been  invaluable 
and  informative. 

Representative  Hollister,  if  you  will  come  forward  we  will  be  de- 
lighted to  receive  your  testimony  and  hear  your  comments.  Thank 
you  for  being  with  us.  Would  you  like  to  identify  your  associate? 



Mr.  HoLLiSTER.  Thank  you,  Congressman.  I  am  Representative 
David  Hollister  from  Lansing,  I  have  served  in  the  legislature  18 
years.  I  chaired  the  Appropriations  Committee  on  Social  Services 
for  the  last  14  years,  so  I  am  kind  of  a  masochist. 

I  have  responsibility  for  the  Medicaid  budget.  I  am  on  the  mental 
health  budget,  public  health  budget  and  the  school  aid  budget,  so  I 
kind  of  see  the  interrelationship  between  those  budgets. 

I  chair  a  special  committee  on  the  legislature  of  State,  local  and 
Federal  Government,  trying  to  see  the  interaction  between  Federal 
policy.  State  policy  and  local  government.  It  is  in  that  context  I 
come  before  you  this  morning. 

I  am  joined  by  Warren  Gregory,  a  professor  on  the  staff  of  the 
House  Fiscal  Agency,  and  has  done  a  lot  of  research  in  this  area.  I 
forgot  to  fax  to  you  a  recent  study  done  by  Steven  Gold.  Steven 
Gold  is  with  the  Center  for  Study  of  the  States  out  of  Albany,  New 
York,  and  he  just  published  a  report  called  "The  States  and  the 
Poor",  where  he  tries  to  do  an  analysis  on  what  is  going  on  across 
the  country  in  all  the  States,  not  just  in  Michigan.  I  have  a  sum- 
mary of  that  I  can  leave  with  you.  I  highly  recommend  the  summa- 

Basically,  what  he  tries  to  do  is  summarize  why  all  the  States 
are  in  trouble,  not  just  one.  You  can't  go  to  Michigan  and  say  we 
have  a  bad  Governor  or  legislature.  What  he  talks  about  is  basical- 
ly the  States  are  facing  two  problems: 

The  first  problem  is  a  prolonged  recession.  When  the  Nation  is  in 
a  recession,  Michigan  suffers  dramatically.  While  the  country  is  in 
a  prolonged  recession,  ther6  is  another  thing  going  on  that  is  more 
important  but  less  understood.  That  is,  there  is  a  substantial 
change  in  our  structural  society.  Those  structural  changes  are 
having  a  bigger  impact  than  the  recession.  Even  when  the  reces- 
sion is  over,  Michigan  is  not  going  to  bounce  back.  Ohio  is  not 
going  to  bounce  back,  Illinois  is  not  going  to  bounce  back. 

Let  me  just  highlight  for  you,  if  I  could,  the  five  structural  things 
that  goal  talks  about,  because  they  are  very  essential  to  what  you 
are  looking  at.  The  first  thing  is  obvious  to  all  of  us  in  all  the 
States,  is  the  cost  of  health  care.  And  you  are  focusing  on  the 
growth  of  Medicaid  and  Medicaid  over  the  last  decade,  since  1980 
in  Michigan  has  gone  up  about  128  percent,  so  indeed  it  is  one  of 
the  fastest  growing  parts  of  the  budget. 

And  we  just  had  our  presentation  last  week  that  Medicaid  is  now 
53  percent  of  Michigan's  social  services  budget.  Ten  years  ago  it 
was  33  percent.  So,  when  you  are  talking  about  more  money  going 
to  the  poor  in  Michigan,  it  is  going  to  the  physicians  of  the  poor, 
clinics  of  the  poor.  It  is  not  going  to  the  poor.  It  is  going  for  health 
care,  and  the  grant  levels  have  not  kept  up,  they  have  been  going 

So,  while  Medicaid  has  been  going  up  128  percent,  we  need  to 
look  at  other  parts  of  our  budget  where  we  spend  money  on  health 
care.  Medicaid  has  gone  up  128  percent,  but  if  we  look  at  State  em- 
ployee health  care  costs  that  we  pay  for  with  our  tax  dollars  in  the 


same  decade,  those  costs  have  gone  up  269  percent,  almost  double. 
So  we  are  paying  double  for  health  care  growth  of  our  State  em- 

If  you  look  at  our  State  retiree  costs  that  we  also  pay  out  of  our 
State  dollars  over  the  same  period  of  time,  since  1980,  those  costs 
have  gone  up  647  percent.  If  you  look  at  our  teachers,  we  help  fi- 
nance the  teachers'  health  care  costs  and  their  social  security  and 
retirement.  That  has  gone  up  800  percent.  Congressmen. 

Corrections:  When  we  put  a  person  in  prison.  If  we  put  them  in 
prison,  we  pay  four  times  more  and  our  prison  health  care  costs 
have  gone  up  403  percent.  If  you  put  those  costs  together,  Medicaid, 
State  employees,  the  teachers,  the  prisons. 

Mr.  CoNYERS.  Are  those  correction  officials  or  inmates? 

Mr.  HoLLiSTER.  Inmates.  The  correction  officials  are  paid  for  by 
State  employees.  If  you  put  all  those  together,  you  have  gone  from 
20  percent  of  our  budget  to  26.7  percent.  The  pie  is  being  squeezed 
by  health  care.  And  that  is  true  in  all  the  States,  not  just  Michi- 
gan. So  keep  that  in  mind. 

Medicaid  is  a  pauper.  Let  me  say  that  again,  Medicaid  is  a 
pauper  compared  to  the  other  costs  of  health  care.  So  that  is  the 
first  thing  confronting  all  the  States. 

The  second  thing  is  the  changing  role  of  the  Federal  Govern- 
ment. When  I  came  into  government  20  years  ago,  we  considered 
the  Feds  a  partner  and  you  considered  the  States  a  partner,  and  we 
considered  the  counties  a  partner,  and  we  were  all  in  partnership 
trying  to  fix  things. 

Now  that  has  changed.  Now  we  are  seen  as  the  enemy.  The 
States  see  the  Federal  Government  as  part  of  the  problem.  Now  we 
are  no  longer  seen  as  partners;  we  are  all  seen  as  bandits  in  this, 
seeing  who  can  shaft  who.  There  has  been  a  policy  of  what  I  call 
the  shift  and  the  shaft. 

The  Feds  are  shifting  responsibilities  to  the  States  and  cutting 
us.  We  try  to  maintain  it  as  long  as  we  can,  and  now  we  are  cut- 
ting responsibility  and  shifting  it  to  local  government.  If  you  don't 
think  that  is  happening,  wander  up  and  down  the  streets  of  De- 

What  that  means  to  Michigan  is—this  is  true  of  all  the  States — 
we  have  lost  an  amount  equal  to  our  entire  State  budget  in  Federal 
budget  cuts  in  the  last  decade.  For  Michigan,  that  is  $11  billion  in 
cuts.  Our  entire  State  budget  is  $7.6  billion  and  we  have  lost  $11 
billion  in  budget  cuts.  Congressmen,  those  cuts  are  in  employment 
training,  they  are  in  urban  development,  they  are  in  education, 
they  cut  across  the  board.  We  have  seen  a  changing  role  in  the 
Federal  Government. 

While  the  government  is  cutting  back  payments  to  government, 
and  most  of  those  cuts,  by  the  way,  were  in  State  and  local  aid, 
they  have  been  mandating  new  programs,  and  I  have  been  the  big- 
gest supporter  of  the  mandates. 

Frankly,  if  it  was  not  for  the  Federal  mandates,  Michigan  would 
not  be  expanding  health  care.  What  we  have  been  seeing,  a  very 
subtle  decision  to  create  universal  health  care  for  children.  We 
have  been  expanding  access  to  women  and  children,  which  I  be- 
lieve in. 


At  the  same  time,  we  have  ended  health  care  for  85,000  adults  in 
this  State.  So  we  are  kind  of  singling  out  one  group  to  get  universal 
health  care  for  children,  and  I  have  supported  that  and  we  have 
done  it  through  your  mandates.  At  the  same  time,  because  of  the 
budget  constraints  I  just  talked  about,  we  had  to  cut  back  in  other 

One  of  the  key  questions  we  have  to  deal  with  as  State  legisla- 
tures is  health  care.  I  think  there  is  a  consensus  that  health  care  is 
a  right.  The  next  question  is,  how  do  we  organize  it  and  pay  for  it? 

This  problem  of  the  changing  role  of  the  Federal  Government 
from  partner  to,  now,  the  perceived  enemy  is  fundamental  to  our 
problem.  I  am  here  to  support  the  mandates.  You  will  have  others 
criticize  you,  but  I  am  not  one  of  them.  We  have  to  provide  univer- 
sality, and  now  we  are  doing  it  for  the  children,  but  we  have  to  do 
it  for  all. 

The  third  thing  that  is  happening  to  the  States,  the  economy  is 
changing  in  Michigan  and  it  is  changing  throughout  the  country. 
Michigan  lost  30  percent  of  its  manufacturing  jobs,  and  80  percent 
of  those  manufacturing  jobs  had  health  care. 

We  have  been  creating  service  jobs  and  our  service  jobs  are  up  by 
33  percent  in  Michigan;  we  have  created  over  400,000  new  service 
jobs  at  the  same  time  we  were  losing  those  manufacturing  jobs. 
Unfortunately,  most  of  them  have  no  insurance. 

Sixty  percent  of  the  new  jobs  in  Michigan,  Congressmen,  pay 
$7,000  a  year  or  less.  Sixty  percent  of  new  jobs  in  Michigan  pay 
$7,000  a  year  or  less,  and  most  have  no  insurance. 

You  have  got  a  new  phenomenon  in  this  country  and  it  is  going 
on  all  over.  You  can  have  an  intact  family,  husband  and  wife  work- 
ing full-time  at  a  minimum  wage  job  and  living  below  the  poverty 
level.  What  happened  to  the  American  dream?  And  they  have  got 
no  insurance,  and  if  one  of  the  kids  needs  a  tonsillectomy  or  any 
kind  of  health  care,  the  family  is  wiped  out,  they  are  right  on  the 

So  we — and  this  is  happening  in  all  the  States,  not  just  Michi- 
gan. This  new  service  industry,  low-paying  minimum  wage  jobs,  no 
insurance.  That  is  what  has  created  35  million  Americans  out 
there,  the  working  poor,  who  have  no  insurance,  and  you  can't 
blame  the  small  business  people  because  they  can't  afford  to  pro- 
vide it. 

Therefore  we  sit  with  this  new  working  poor,  at-risk  family, 
trying  to  maintain  the  American  dream  and  working  full  time  at  a 
minimum  wage  job  and  falling  deeper  and  deeper  in  debt.  Con- 
gressman you  had  a  question,  I  think? 

Mr.  CoNYERS.  No.  I  have  a  number  of  questions.  I  wanted  to  wait 
until  you  conclude. 

Mr.  HoLLiSTER.  I  have  two  other  things  that  are  happening  to  all 
the  States.  It  kind  of  helps  understand  why  we  are  where  we  are. 
The  next  thing  is  a  decision  in  the  early  eighties  to  get  tough  on 
crime.  We  decided  not  to  get  smart  on  crime,  but  tough  on  crime. 

We  started  building  one  new  prison  8  weeks  ago.  In  fact,  we  have 
been  opening  them  so  fast  we  cannot  afford  to  hire  people  and 
train  them  so  we  have  three  sitting  vacant.  We  had  to  hire  prison 
guards  to  keep  people  from  breaking  into  our  prisons.  That  hap- 


pened  right  here  in  this  community.  We  know  who  are  in  prison, 
they  are  our  urban  poor,  uneducated. 

I  was  recently  meeting  with  some  health  care  people.  They  said 
the  number  one  predictor  of  people  in  prison,  look  at  their  dental 
charts.  They  are  all  without  dental  care.  It  is  just  a  symbol,  just 
shows  you  what  happens.  Prisons  have  gone  from  2  percent  of  our 
budget  in  1980  to,  1992,  it  is  9  percent  of  our  budget,  9  percent. 

Congressmen,  recently,  our  director  of  our  local  homeless  shelter 
began  advising  our  homeless  people  if  they  needed  health  care,  to 
go  get  arrested  in  Lansing.  If  you  need  health  care,  go  throw  a 
brick  through  a  window,  get  arrested.  Otherwise,  there  is  no  health 
care  available  in  this  State.  That  is  happening  in  all  the  States, 
and  we  need  to  get  smart  on  crime. 

There  are  other  ways  to  deal  with  this.  The  last  thing  that  is 
happening  in  all  the  States  is  the  growth  of  tax  expenditures.  This 
is  the  second  fastest  growing  part  of  State  budgets,  tax  loopholes, 
uncollected  taxes.  And  we  deal  with  them  all  the  time.  They  are 
popular  to  do.  Give  this  group  a  break.  They  are  all  good  ideas,  but 
they  are  eroding  our  tax  base  at  the  very  time  we  are  having  more 
and  more  demands  on  health  care.  This  is  happening  to  all  the 

So,  you  have  got  two  things.  States  are  dealing  with  a  prolonged 
recession  and  a  structural  problem.  Now,  that  forces  them  to  either 
cut  back  or  to  raise  revenues  and  Gold's  analysis  talks  about  how 
the  States  have  cut  back.  Michigan  is  one  of  a  couple  of  States  to 
try  to  solve  the  entire  problem  by  cuts.  Even  the  States  that  raised 
revenues,  raised  taxes,  raised  taxes  in  a  regressive  way  so  the  taxes  i 
that  were  raised  hurt  the  poor  the  most.  I 

Now,  because  we  have  been  in  a  cutback  strategy  for  10  years,  I 
we  have  not  been  able  to  reinvest  in  our  infrastructure.  This  I 
became  obvious  to  me  when  I  drove  in  from  Lansing.  i 

I  drive  a  little  compact  car.  I  almost  lost  it  driving  on  the  ex-  j 
pressway  because  of  the  potholes.  We  haven't  been  investing  in  our  i 
infrastructure.  We  haven't  been  investing  in  new  campuses.  We 
have  been  investing  in  prisons  and  we  have  been  cutting  back  ev- 
erywhere else.  We  haven't  been  able  to  invest  in  training  and  em- 
ployment programs.  Now  our  workers  are  no  longer  competitive.  | 

We  can't  sit  here  and  bash  the  Japanese,  because  if  Japan  owns  i 
an  American  plant,  they  spend  $2,700  more  than  an  American 
manufacturer  in  the  same  plant.  They  are  investing  in  employ-  \ 
ment  and  training,  and  we  haven't  been  able  to  do  that,  and  most  | 
of  the  cuts  that  have  come  from  the  Federal  Government  have  | 
been  in  employment  and  training. 

By  the  way,  the  employment  and  training  programs  we  did  have,  | 
the  Governor  vetoed,  so  we  lost  the  Job  Corps,  the  Youth  Corps, 
Neighborhood  Corps,  Conservation  Corps,  all  gone.  We  are  in  a 
pickle.  I  am  here  to  tell  you  we  have  to  scramble  quickly  or  it  is 
going  to  be  a  total  disaster. 

You  asked  for  recommendations.  We  need  a  national  health  in-  i 
surance  program.  We  need  a  single  payer  and  we  need  it  now.  That  1 
is  the  most  efficient,  the  most  effective,  and  it  has  got  to  be  a  fairly  I 
rapid  solution,  or  you  are  just  not  going  to  do  it. 

The  President's  program  is  hopelessly  inadequate.  We  need  a  na-  t 
tional  housing  policy.  Congressman,  I  know  you  are  interested  in  p 


housing.  There  has  been  an  80-percent  cut  in  housing  support.  We 
need  a  national  family  leave  policy.  We  need  a  national  day  care 

It  was  interesting,  I  was  recently  in  a  conversation  with  one  of 
my  Republican  colleagues  and  he  was  talking  about  how  we  are 
overtaxed.  I  said,  well,  people  are  angry.  They  are  angry  because 
they  don't  get  much  back  for  their  taxes. 

You  look  at  Europe  and  Japan,  people  pay  a  lot  more  as  a  per- 
cent of  their  wages  in  taxes.  They  get  a  national  transportation 
system.  They  can  jump  on  whatever,  the  subway  and  travel  all 
over  Europe.  They  get  national  health  insurance.  They  get  day 
care.  They  get  family  leave.  There  is  a  sense  they  get  something 

What  we  have  been  doing  for  the  last  10  years  is  cutting  back 
what  little  there  was  so  the  people  are  getting  angrier  and  angrier. 
It  is  in  our  own  self-interest  to  find  a  way  to  organize  these  serv- 
ices so  middle-class  people  feel  like  they  have  a  stake  in  this  gov- 
ernment. The  government  is  not  the  enemy. 

If  we  look  at  who  is  beating  us  around  the  world,  it  is  those  coun- 
tries where  government  and  business  are  seen  as  allies  working  to- 
gether to  solve  these  problems.  And  I  am  urging  you,  as  I  did  in 
Washington  recently,  to  take  the  lead  to  bring  in  these  corporate 
managers,  to  bring  in  the  small  business  that  create  more  jobs 
than  the  Big  Three  ever  thought  of. 

Warren  said  the  Big  Three  will  never  create  a  new  job  in  this 
State  again.  All  we  can  do  is  stop  the  erosion.  The  people  who  will 
create  jobs  are  small  business.  We  need  to  bring  them  in  and  have 
them  participate.  We  have  to  see  ourselves  as  collaborators  in  a 
joint  collective  solution,  or  the  Japanese  and  Germans  will  beat  our 
brains  out  as  we  quietly  whimper  away. 

The  situation  is  desperate.  If  you  don't  think  it  is  desperate,  walk 
down  the  cats  border.  If  you  come  back  safe,  you  will  be  lucky. 

Congressmen,  for  the  first  time,  Lansing  is  an  affluent  city^ 
Michigan  State  government.  General  Motors;  and  we  have  families 
standing  on  corners,  will  work  for  food.  It  has  never  happened 
before.  Something  is  fundamentally  wrong,  and  we  he  have  to  re- 
spond, and  we  have  to  care  and  show  them  that  somebody  cares 
and  somebody  is  going  to  offer  them  hope,  or  we  are  in  desperate 
chance  of  losing  it  all. 

I  was  in  Europe  last  year,  and  so  excited  about  the  changes  that 
were  going  on,  and  they  brought  every  communist  government  in 
Europe  down  without  firing  a  gun  because  it  was  a  corrupt  system 
and  they  wanted  to  be  like  us.  And  we  can't  offer  them  health 
care,  we  can't  offer  them  day  care,  we  can't  offer  them  shelter. 

I  opened  last  Sunday's  Toronto  paper,  Toronto  Star,  condemning 
what  is  happening  in  Michigan.  Headline — ^two  page  feature — 
Misery  in  Michigan.  What  is  going  on  to  our  neighbors  in  the 
south?  Have  we  lost  our  soul?  Have  we  lost  the  sense  of  who  we 
are  and  what  we  are  about?  That  seems  to  be  where  we  are. 

I  would  close  by  saying  I  shared  with  your  staffer  a  statement 
issued  by  the  clergy  of  the  State,  a  group  of  Bishops  came  to  the 
Capitol  back  in  December,  first  time  in  18  years  that  I  have  been 
there,  and  they  said,  this  is  morally  wrong.  You  got  to  stop  doing 
these  cuts.  You  got  to  offer  an  alternative.  You  got  to  offer  people 


hope.  You  got  to  stop  playing  on  prejudice,  stereotypes;  let's  offer 
people  hope. 

That  is  why  I  traveled  down  here  again  this  morning,  and  I  will 
do  whatever  you  asked  me  to  do  to  try  to  get  this  message  out  that 
we  are  losing  time  and  our  people  are  growing  impatient.  We  are 
seeing  it  in  all  the  elections.  People  are  angry  and  they  are  losing 
patience.  Health  care  is  critical  to  that,  but  it  is  not  all  of  it. 

Mr.  DiNGELL.  Thank  you,  Mr.  HoUister. 

Mr.  Gregory,  any  comments? 

Mr.  Gregory.  No,  sir. 

Mr.  DiNGELL.  Mr.  Schaefer. 

Mr.  Schaefer.  Thank  you.  Mr.  Hollister,  I  would  tend  to  agree 
with  you  on  a  number  of  issues,  but  we  would  not  agree  on  others. 
Small  businesses  create  the  jobs.  I  was  sorry  to  hear  of  all  the  man- 
ufacturing jobs  that  you  are  losing.  These  are  the  ones  that  do 
carry  health  insurance  where  the  service  jobs  do  not.  I  understand 
that  very  well. 

We  have  to  look  at  why  are  we  losing  manufacturing  jobs.  I  have 
my  own  opinion.  It  goes  way  back  to  1986,  when  we  passed  the  tax 
bill,  that  I  did  not  support  for  a  number  of  reasons.  We  got  rid  of 
investment  tax  credits. 

When  we  got  rid  of  investment  tax  credits,  we  did  not  encourage 
the  businesses,  particularly  small  businesses,  to  go  out  and  buy 
new  machinery,  expand  their  businesses  and  create  more  jobs,  be- 
cause we  took  those  tax  credits  away  from  them. 

I  think  that  is  a  lot  of  the  reason  for  what  has  happened  here 
today,  not  only  in  the  State  of  Michigan,  but  in  Colorado,  Kansas 
and  many  other  places.  I  think  tax  problems  have  caused  a  lot  of 
other  problems. 

Mr.  Hollister.  I  would  take  issue  to  one  point.  We  gave  major 
tax  incentives  to  General  Motors,  who  just  left  Michigan  for  Texas. 
We  have  gone  overboard  as  a  State  and  local  communities. 

Mr.  Schaefer.  I  am  talking  about  the  Federal. 

Mr.  Hollister.  I  understand  that.  What  we  have  to  do  is  target 
tax  policies.  One  of  the  things  we  are  advocating  if  you  are  going  to 
give  tax  incentive,  let's  build  in  training  and  retraining.  You  don't 
get  the  tax  credit  unless  you  actually  create  the  job  and  train  the 
person  as  part  of  it. 

You  can  bring  in  all  the  equipment  you  want  to.  If  you  have  to 
import  workers  from  Europe  to  run  them,  or  from  someplace  else, 
or  if  you  can't  hire  the  staff,  people  locally  to  do  it,  you  have  got 

Mr.  Schaefer.  I  understand  that.  You  take  any  small  business,  a 
manufacturing  business  and  you  say  to  them,  in  order  to  expand,  if 
you  would  be  willing  to  expand  you  are  going  to  create  new  jobs, 
which  would  include  carrying  the  health  benefits,  et  cetera,  which 
we  want  to  see.  But  in  order  to  do  that,  we  will  give  you  a  7  or  10 
percent  tax  credit  on  any  new  manufacturing  machinery  you  bring 

We  combine  all  this  together  and,  of  course,  you  would  have  to 
have  a  retraining  program,  or  whatever,  because  you  want  the 
local  people  to  get  these  jobs.  I  just  think  that  was  a  big  mistake 
we  made,  and  I  think  this  is  reflective  of  it.  I  think  that  issue  alone 


could  certainly  be  beneficial  to  holding  and  expanding  manufactur- 
ing jobs. 

Mr.  HoLUSTER.  There  was  a  survey  of  small  businesses  in  Michi- 
gan. Eighty  percent  report  the  people  they  hired  lacked  the  skills 
to  do  the  job,  and  they  had  no  money  and  no  training  program, 
where  at  least  the  bigger  companies  had  some  capacity  to  do  thdt. 
It  was  minimal.  It  wasn't  anything  compared  to  what  European 
and  Japanese  managers  bring  with  them.  Training  and  retraining 
is  a  critical  part. 

Mr.  ScHAEFER.  I  understand,  but  that  could  all  be  tied  in. 

Mr.  HoLLiSTER.  What  I  am  suggesting,  when  we  do  it,  be  very 
precise  and  not  give  broad  ones.  We  learned  very  well  the  broad 
breaks  don't  work. 

Mr.  ScHAEFER.  Thank  you. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman.  The  gentleman 
from  Michigan,  Mr.  Upton. 

Mr.  Upton.  Thank  you,  Mr.  Chairman.  I,  too,  agree  that  our  tax 
policy  is  something  where  we  really  have  to  change  our  emphasis, 
to  blow  up  the  health  care  system  we  have  today  and  really  begin 

One  of  the  concerns  I  have  had,  Mr.  Hollister,  and  I  don't  re- 
member if  we  discussed  it  when  you  appeared  before  the  committee 
last  time,  is  our  joint  concern  for  those  35  million  Americans  with- 
out insurance,  1  million  in  Michigan,  many  more  certainly  unin- 

The  interesting  fact  I  discovered,  two-thirds  of  those  uninsured 
have  someone  in  their  family  that  works.  The  big  companies, 
Chrysler  was  here,  and  a  little  earlier,  the  GM's,  92  percent  of 
those  firms  employing  between  50  and  100  people  offer  health  in- 
surance. The  small  businesses  with  less  than  25  employees,  only  42 
percent  was  the  number  that  offered  health  insurance. 

For  many  of  them,  it  is  a  matter  of  fairness.  The  large  companies 
are  able  to  deduct  100  percent  of  their  costs.  The  self-employed, 
particularly  farmers  in  my  neck  of  the  woods,  the  small  folks  are 
able  to  only  deduct  25  percent  of  their  health  insurance  costs. 

One  of  the  things  I  have  advocated  is  to  bring  that  up  to  100  per- 
cent right  off  the  bat,  so  we  can  deal  with  many  of  the  problems 
that  we  have  in  the  private  sector  with  providing  adequate  health 
insurance.  The  question  I  have  for  you — it  is  too  bad  Vernon  Smith 
is  not  on  the  same  panel.  One  of  the  things  he  mentions  in  his  tes- 
timony is  Medicaid  expenditures  are  breaking  the  bank. 

In  1985  here  in  Michigan,  the  State  budget  was  $1.5  billion.  In 
1991,  $3  billion;  from  9  percent  of  the  budget  to  14  percent  of  the 
budget.  It  is  a  big  increase,  yet  our  social  safety  net  for  many  folks 
in  Michigan  is  perhaps  not  as  good  as  it  was  before.  What  can  we 

Mr.  Hollister.  Well,  I  

Mr.  Upton.  Why  haven't  we  been  able  

Mr.  Hollister.  I  would  agree  it  is  one  of  the  fastest  parts  of  the 
budget.  It  is  because  the  way  we  organize  the  legislature  and  the 
way  we  organize  Congress  is  fragmented,  and  it  is  hard  to  look  at 
the  whole  system.  I  want  to  look  at  State  employee  health  care 


The  State  is  an  employer.  They  have  direct  control  over  that  as 
well.  They  are  a  purchaser  of  Medicaid.  They  use  their  dollar  to 
purchase  services.  The  health  care  for  State  employees  has  doubled 
that  of  Medicaid. 

While  Vernon  is  going  to  be  here  and  talk  about  Medicaid  and 
the  struggle  we  have  had,  over  that  decade  we  have  made  57 
changes  in  policy  with  Medicaid.  We  did  everything  imaginable. 
We  tried  everything.  We  went  to  managed  care.  We  did  second  sur- 
gical opinions.  We  stopped  weekend  admissions.  It  goes  on  and  on 
and  on. 

We  haven't  initiated  any  cost  containment  for  State  employees, 
State  retirees,  school  teachers,  and  those  costs  are  going  up  be- 
tween 6  and  800  percent  in  that  same  decade.  We  come  at  it  singu- 
larly against  the  poor. 

For  the  same — the  State  purchases  medical  care  for  State  em- 
ployees, State  teachers  and  retirees,  oh,  not  our  problem.  What  do 
you  mean  it  is  not  your  problem?  It  is  the  State  health  care  costs 
squeezing  the  budget.  If  you  look  at  the  aggregate,  we  went  from  20 
percent  of  the  budget  to  26.7  percent  of  the  budget. 

Why  do  we  put  all  our  guns  on  Medicaid?  Why  don't  we  have  the 
same  policies  in  Medicaid  apply  to  State  legislatures,  health  insur- 
ance? Well,  hey,  COP  AY,  you  got  to  be  kidding.  We  don't  pay 
COPAY's.  I  am  a  State  legislator,  I  don't  pay  COPAY's  for  nothing. 
I  have  got  dental  care  and  eye  care  and  this  and  that. 

Mr.  Upton.  We  have  a  lot  of  Members  of  Congress  that  would 
like  to  run  for  State  Rep. 

Mr.  HoLLiSTER.  We  welcome  them.  These  new  districts,  they 
might  be  able  to.  We  might  all  be  looking  for  jobs.  I  think  that  is 
the  point  I  was  making.  You  can't  just  look  at  Medicaid,  you  got  to 
look  at  the  other  pieces.  You  need  a  national  program. 

The  last  time  I  was  there,  we  were  talking  about  Oregon.  They 
are  struggling.  We  do  it  one  way.  Frankly,  we  are  looking  at  the 
Oregon  model  as  well.  Medicaid  is  breaking  us  and  there  are  poli- 
tics to  cut  Medicaid.  No  politics  to  cut  school  teachers.  The  problem 
is  the  same.  Health  care  costs  cause  pressures. 

Mr.  Upton.  Thank  you. 

Mr.  DiNGELL.  The  gentleman  from  Michigan,  Mr.  Conyers. 

Mr.  Conyers.  Thank  you,  Mr.  Chairman.  I  want  to  demonstrate 
my  ability  to  be  brief,  because  lunch  is  here,  and  I  know  I  would  be 
thought  very  well  of  if  I  conduct  myself  accordingly. 

First  of  all,  my  thanks  to  you  for  putting  Representative  HoUis- 
ter  on.  Second,  I  have  to  find  out  if  HoUister  is  available  as  a  write- 
in  candidate  for  the  Democratic  Presidency. 

Mr.  HoLLiSTER.  I  am  available  for  the  draft. 

Mr.  Conyers.  Usually,  draftees  are  very  evasive  about  this  sub- 
ject, but  I  am  glad  you  are  so  forthcoming.  Finally,  there  is  the 
question  of  fraud,  which  is  one  of  the  things  that  brings  us  here  to 
this  hearing  about  Medicaid.  Part  one.  Part  two. 

What  about  the  Blue  Cross-Blue  Shield  third-party  cheating  that 
has  gone  on  in  this  State  for  the  last  15  years  that  I  can  track  out 
of  lawsuits — they  keep  losing  the  lawsuits,  keep  agreeing  to  pay  up 
and  never  come  around. 

And  second,  what  about  all  of  these  minority  providers,  the  black 
doctors  and  pharmacists  who  are  being  prosecuted  for  Medicaid 


fraud  because  they  filled  out  the  wrong  form  or  made  an  account- 
ing error?  For  instance,  one  practitioner  got  prosecuted  in  one 
State  for  ninety-five  cents  difference  in  what  the  Medicaid  hit  team 
found  he  should  have  done. 

Michigan's  Medicaid  fraud  squad  just  hauled  off  a  lady,  a  black 
female  doctor  and  a  member  of  Hartford  Avenue  Church,  here  in 
Detroit  to  a  12-year  sentence  just  last  month.  I  called  her.  Chair- 
man Dingell,  to  ask  her  to  come  and  listen  to  this  hearing;  they 
said  she  was  taken  to  prison  immediately  after  her  trial.  She  is  in 
the  slammer,  you  can't  get  to  her. 

So  I  ask  for  your  comments  on  that.  That  is  my  first  question. 

Mr.  HoLLiSTER.  Well,  I  don't  know  the  specific  case,  but,  again,  it 
gets  back  to  being  not  very  smart  on  crime.  Even  if  she  were  culpa- 
ble, it  doesn't  make  any  sense  to  put  her  in  prison.  I  would  have 
her  in  a  community  center  providing  health  care.  My  God,  we  can't 
get  health  care  in  the  inner  city  of  Detroit. 

I  think  Vern  can  speak  to  the — Vern  can  speak  to  the  problem. 
We  are  the  payer  of  last  resort.  We  keep  getting  shifted  with  the 
cost,  too.  It  is  one  of  the  oldest  problems  out  there.  We  aggressively 
pursue  it.  They  have  the  resources  to  appeal,  and  that  is  where  it 
goes  and  it  drags  on  and  on.  They  win  by  their  tenacity. 

Let  me  give  you  another  problem.  Congressman.  Warren  and  I 
were  here  earlier  this  morning.  We  had  a  meeting  at  8:00  at  one  of 
our  mental  health  centers,  and  I  just  met  with  a  primary  care  phy- 
sician and  it  was  very,  very  troubling. 

As  you  know,  many  parts  of  the  country  are  deinstitutionalizing 
the  mentally  ill.  That  is  a  program  I  have  supported  over  the 
years,  because  I  believe  a  comprehensive  community  mental  health 
system  can  work  if  it  is  properly  financed,  but  we  haven't  properly 
financed  that  system,  and  she  was  the  primary  caregiver  for  42 
group  homes.  The  group  homes  in  Michigan  are  six  or  less. 

She  just  canceled  her  contract  with  all  those  42  group  homes, 
and  those  42  group  homes  versus  no  primary  care  physician  any- 
more because  we  are  paying  minimum  wages,  people  are  not 
trained.  They  are  giving  double  medications,  the  wrong  medica- 
tions. They  don't  even  have  the  blood  pressure  equipment  in  the 

She  said,  *1  can't  take  it  any  more."  She  said,  "I  am  aware  of 
several  deaths.  I  am  worried  about  my  own  liability."  The  system 
is  falling  apart  and  several  hundred  developmentally  disabled 
people  that  she  was  giving  primary  care  for  are  without  health 
care  today  in  this  community.  That  is  why  we  were  running  late.  I 
couldn't  believe  the  story  she  was  telling. 

People  are  falling  through  the  cracks  in  massive  levels,  and  I  am 
deeply  troubled.  When  I  came  before  you  in  October,  I  said  the 
system  is  collapsing.  I  am  convinced  today  it  has  collapsed. 

Mr.  Gregory.  I  would  like  to  add  one  thing  that  goes  to  your 
question.  I  think  this  is  a  function  of  the  confusion,  the  high  ad- 
ministering of  compliance  costs.  We  have  a  nursing  shortage  in 
this  country,  but  yet,  nurses  graduate  in  greater  and  greater  num- 
bers each  year. 

Patient  days  go  down,  but  yet  our  shortage  grows  greater,  and 
that  is  because  each  year,  nurses  are  forced  to  do  more  administra- 
tion, more  billing,  more  compliance,  and  that  is  the  type  of  situa- 


tion  that  this  leads  to.  I  think  there  is  too  much  confusion  in  the 
system,  and  those  who  have  the  opportunity  to  manipulate  the 
system  have  plenty  of  opportunity  to  do  it. 

Mr.  CoNYERS.  Mr.  Chairman,  I  said  I  would  only  ask  one  question 
and  I  kept  my  word.  I  close  by — ^you  know,  this  used  to  be  your  Dis- 
trict many  years  ago.  Most  people  have  forgotten  that. 

Mr.  DiNGELL.  It  used  to  be  our  district. 

Mr.  CoNYERS.  Used  to  be  mine,  too.  But  at  the  risk  of  being 
thrown  off  your  subcommittee,  I  have  got  four  people  that  I  have  to 
acknowledge  in  the  record.  One  is  Susan  McParland,  one  of  the 
real  great  poverty  lawyers,  who  is  going  to  be  a  witness,  and  long- 
time friend  of  mine. 

The  other  is  Roberta  Cottman  at  Wayne  State  University  Phar- 
macy— is  that  Dr.  Anderson  sitting  in — I  had  to  mention  his  name. 

The  third  is  Barbara  Wynder,  the  lawyer  who  has  been  working 
on  these  matters  about  discriminatory  prosecution,  which  I  know 
you  will  be  interested  in,  as  I  am,  with  Norman  Clements,  the  den- 
tist, for  so  many  years. 

Finally,  in  the  back  is  Stanley  Stewart,  who  beats  my  brains  out 
in  tennis  every  time  I  am  foolish  enough  to  go  out  on  the  court 
with  him.  I  thank  you  so  much  for  yielding  me  so  much  time. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman.  Mr.  Hollister  and 
Mr.  Gregory,  we  thank  you  for  your  assistance.  Mr.  Hollister,  you 
have  been  before  us  several  times.  I  regret  to  note  we  are  now  out 
of  time,  but  I  would  like  to  State  for  the  record,  and  leave  the 
record  open  to  have  you  and  other  witnesses  to  respond  to  some 
questions  the  subcommittee  will  be  presenting  to  you. 

I  am  particularly  concerned  with  your  views  with  regard  to  the 
panel  which  was  initiated  by  Governor  Milliken,  continued  by  Gov-  ^ 
ernor  Blanchard  in  the  early  1980's.  That  panel  had  as  its  responsi-  j 
bility  the  question  of  how  to  provide  food,  shelter  and  primary  j 
health  care  to  the  needy  on  an  emergency  basis.  If  the  staff  were  in  j 
touch  with  you,  would  you  give  us  some  assistance  on  what  the  rec-  j 
ommendations  were  and  what  the  outcome  of  the  recommendations 
were?  | 

Mr.  Hollister.  I  am  glad  you  raised  that,  because  in  that  reces-  [ 
sion.  Governor  Milliken  became  so  alarmed,  he  declared  a  hunger  [ 
emergency  and  actually  opened  a  center  in  Lansing  through  the  [ 
State  police  network  that  moved  truckloads  of  food  and  they  got  ^ 
farmers  contributing  food.  j 

We  had  a  whole  number  of  operations  moving  food  around;  open-  f 
ing  our  National  Guard  shelters  for  homeless  shelters  and  organiz-  L 
ing  physicians  to  provide  primary  care.  That  got  worldwide  atten-  g 
tion.  I  am  here  to  tell  you  today,  circumstances  got  worse  than  |^ 
they  were  when  Milliken  made  that  declaration.  jj 

Mr.  DiNGELL.  Ladies  and  gentlemen,  the  Chair  wants  to  thank  | 
all  present,  both  our  panel  members  and  witnesses.  a 

The  Chair  announces  our  next  witnesses  will  be  Dr.  Vernon  I 
Smith,  director,  Medical  Services  Administration,  Michigan  Depart-  j 
ment  of  Social  Sciences;  followed  by  our  County  Executive,  my  good 
friend,  Mr.  Ed  McNamara;  and  another  panel  composed  of  Susan  | 
McParland,  staff  attorney,  Michigan  Legal  Services;  Dr.  David  Ada- 
many,  president  of  Wayne  State  University,  our  host  today;  Mr. 
James  Foster,  administrator,  Three  Rivers  Area  Hospital.  L 


The  last  panel  will  be  Susan  Adelman,  past  president  of  the 
Michigan  State  Medical  Society;  Mr.  Richard  Hiltz,  representing 
the  Michigan  Hospital  Association,  also  president  and  chief  execu- 
tive officer  of  Mercy  Memorial  Hospital. 

The  committee  stands  in  recess.  We  will  reconvene  at  12:15. 

[Whereupon,  at  11:45  a.m.,  the  subcommittee  was  recessed,  to  re- 
convene at  12:15  p.m.,  the  same  day.] 

Mr.  DiNGELL.  The  subcommittee  will  come  to  order.  Our  next 
witness  is  Dr.  Vernon  Smith,  director  of  Medical  Services  Adminis- 
tration, Michigan  Department  of  Social  Services.  We  are  almost  on 
time  in  recognizing  you.  We  thank  you  for  your  presence  today.  We 
look  forward  to  your  testimony.  You  may  consider  yourself  recog- 
nized for  such  statement  as  you  wish  to  give. 


Mr.  Smith.  Thank  you,  Mr.  Dingell,  Schaefer,  Mr.  Upton,  other 
members  of  the  committee.  Governor  Engler  is  unable  to  be  here 
today.  I  am  very  pleased  to  be  here,  because  the  purpose  of  Medic- 
aid is  to  assure  access  to  mainstream  health  care  for  the  most  vul- 
nerable of  the  citizens  for  this  country  is  so  important,  and  the 
amount  of  public  funds  is  so  great  that  we  have  to  continually  ex- 
amine the  program  to  see  how  we  can  accomplish  the  program's 
mission  in  the  most  effective  way  possible. 

As  we  look  at  Medicaid,  we  find  a  series  of  paradoxes  and  appar- 
ent contradictions.  We  know,  for  example,  that  all  the  poor  is  not 
served  by  Medicaid.  Nationally  less  than  half  of  those  below  the 
Federal  poverty  line  is  served  by  Medicaid.  In  Michigan,  perhaps 
30  to  40  percent  of  those  below  the  poverty  line  is  not  served.  Yet 
at  the  same  time  we  know  that  Medicaid  serves  over  1  million  citi- 
zens of  Michigan  of  the  11  to  12  percent  of  the  population  is  in  fact 
served  by  the  program. 

We  know  that  doctors,  dentists,  other  health  care  providers  are 
increasingly  departicipating  or  limiting  their  practice  with  respect 
to  Medicaid.  And  yet,  when  we  look  at  the  data,  we  find  that  most 
doctors,  most  dentists  and  most  health  care  providers  and  all  the 
hospitals  in  this  State  do  in  fact  participate  and  serve  Medicaid  pa- 

We  know  that  Medicaid  patients  sometimes  cannot  find  a  doctor 
for  themselves  or  their  child,  yet  when  we  look  at  the  data,  we  find 
Medicaid  patients  see  physicians  at  almost  exactly  the  same  rate  as 
do  other  insured  populations  in  this  State,  those  covered  by  Blue 
Cross/Blue  Shield  Michigan,  those  covered  by  the  State  Employees 
Retiree  Health  Program,  or  other  commercial  health  insurance. 
We  know  pregnant  patients  on  Medicaid  have  an  especially  diffi- 
cult time  finding  a  physician  to  provide  the  prenatal  care  or  deliv- 
er their  baby.  It  seems  a  week  hardly  goes  by  but  what  we  hear 
someone  has  difficulty  finding  a  physician  for  a  pregnant  lady. 

And  yet.  Medicaid  covers  the  delivery,  and  most  or  all  of  the  pre- 
natal care  for  over  62,000  women  in  this  State  each  year.  That  is 
over  41  percent  of  all  the  babies  born  in  this  State  have  their  deliv- 
ery paid  for  by  Medicaid. 


We  know  there  are  concerns  about  enrolling  Medicaid  patients  in 
managed-care  plans.  Yet  we  find  right  now  in  Michigan,  over  a 
quarter  of  a  million  of  the  950,000  eligibles  have  voluntarily  chosen 
to  enroll  in  a  managed-care  plan  as  their  choice  where  they  would 
like  to  receive  care,  whether  that  is  through  a  patient  loan  plan  or 
for  a  fee-for-service  plan  called  a  Physician  Sponsored  Plan  in 
Michigan,  which  I  know  in  Colorado  there  is  a  plan  which  has 
emulated  that  as  well  for  Medicaid  patients  in  Colorado.  We  know 
there  are  concerns  about  the  quality  of  care  in  certain  managed- 
care  plans.  When  our  studies  have  looked  at  the  quality  of  care  and 
access  to  care,  we  find  managed  care  guarantees  access  to  better 
care,  that  the  quality  of  care  is  at  least  as  good  if  not  better,  in  fact 
our  studies  show  that  patients  in  managed  care  were  16  percent 
more  likely  to  receive  the  care  which  they  needed  than  those  out  in 
the  regular  fee-for-service  system. 

We  know  that  Medicaid  fees  are  low.  We  hear  about  that  a  lot. 
And  yet  even  though  Medicaid  fees,  what  we  pay  for  any  individual 
service,  is  low,  we  look  at  the  cost  of  the  program  and  we  find  that 
costs  have  grown  so  fast  and  become  so  large  that  it  is,  I  think, 
most  would  say,  the  most  serious  budget  problem  among  the  Na- 
tion's Governors,  the  State  budget  directors,  and  legislators,  those 
who  have  to  make  the  difficult  decisions  on  the  allocation  of  scarce 
public  dollars. 

Indeed,  program  cost,  and  I  appreciated  the  eloquence  with 
which  Representative  HoUister  described  this  issue  previous  to  my 
remarks,  program  cost  is  in  fact  the  most  significant  issue,  I  think, 
in  the  program  today.  Medicaid  operates  in  a  health  care  market- 
place where  costs  have  increased  at  roughly  twice  the  rate  of  in- 
crease for  prices  in  general. 

We  have  tried  just  about  every  cost  containment  measure  that 
showed  any  promise  at  all  of  helping  to  control  costs.  Limiting  eli- 
gibility, adjusting  reimbursement  rates,  controls  on  coverage,  limi- 
tations on  coverage  and  the  imposition  of  a  variety  of  controls,  all 
in  an  effort  to  try  and  control  the  cost  of  this  very  expensive  pro- 

Still,  costs  continue  to  skyrocket  at  greater  than  other  State  pro- 
grams and  certainly  greater  than  the  growth  in  State  revenues.  In 
these  very  difficult  economic  times,  when  cutbacks  are  occurring 
across  all  State  programs  in  virtually  every  State,  it  seems  to  me 
that  the  budget  cannot  survive  a  Medicaid  program  that  goes  like 
this,  nor  can  the  Medicaid  program  survive  in  economic  times  as  | 
these  are,  the  budget  situation  we  are  in,  the  difficulty  in  State  j 
revenues  not  growing  as  fast  as  the  program  when  we  look  at  the  | 
causes  of  cost  growth  from  the  State  perspective,  one  of  the  first  \ 
places  that  we  look  at  is  what  has  come  to  be  known  as  the  un-  \ 
funded  Federal  mandates.  Much  has  been  said  on  this  issue.  For 
brevity,  let  me  reiterate  that  States  cannot  accept  any  further  re- 
sponsibility for  program  expansions  without  the  funds  to  go  with 
the  new  responsibilities. 

In  addition.  State  Medicaid  programs  can  use  some  assistance  to 
help  control  program  costs,  and  help  us  move  toward  more  effec- 
tive programs.  States  need  some  room  and  some  support  for  inno- 
vation and  creativity.  The  current  Federal  labor  process  is  obtuse 
and  time  consuming  and  discourages  and  obstructs  State  innova- 


tion.  We  need  an  opportunity  for  States  such  as  Oregon  and  other 
States  that  have  proposed  innovations  to  have  a  chance  to  try 
those  things  which  reflect  the  values,  the  interests,  and  the  prior- 
ities of  the  policymakers  in  those  particular  States. 

Second,  I  mentioned  we  need  support  for  more  effective  man- 
aged-care programs.  I  mentioned  our  managed-care  programs  here 
and  how  we  find  they  improve  access,  ensure  and  guarantee  qual- 
ity of  care,  and  they  serve  to  reduce  costs.  It  turned  out  to  be  in 
the  most  recent  study  10  percent  less  expensive,  and  fee-for-service 
followed  in  assuring  quality  of  care  and  access. 

The  process  right  now  for  carrying  out  these  kinds  of  programs 
requires  waivers.  It  should  be  a  State-planned  option  for  Medicaid, 
and  there  are  some  other  things  which  would  simplify  which  are 
under  consideration  in  other  parts  of  the  Congress  now.  We  ask 
your  support  of  those  as  well. 

If  the  current  Medicaid  program  is  in  fact  to  accomplish  its  pur- 
pose as  a  health  care  program  of  last  resort  and  serve  the  health 
care  needs  of  the  poor  in  this  country,  we  need  assistance.  It  is  im- 
portant to  have  an  effective  and  efficient  program.  The  amount  of 
money  is  too  important  and  the  health  of  the  citizens  of  this  coun- 
try is  so  important  that  we  need  all  the  help  we  can  get. 

So  we  appreciate  the  fact  this  hearing  is  being  held,  that  you  are 
taking  a  look  at  it,  and  any  assistance  you  can  offer  to  make  the 
program  more  effective,  we  certainly  appreciate. 

Thank  you  for  the  chance  to  present  the  testimony,  Mr.  Chair- 

[Testimony  resumes  on  p.  116.] 

[The  prepared  statement  and  attachments  of  Mr.  Smith  follow:] 




Mr.  Chairman.  I  am  Vernon  K.  Smith.  Director  of  the  Michigan 
MEDICAID   Program.      I    am   pleased   to   be   here   today   as  a 


Director  of  the  Michigan  Department  of  Social  Services.      I  am 

here    to    TESTIFY    ON    THE    SEVERAL     ISSUES    AND    PROBLEMS  FACING 

medicaid  programs  today.  and  the  opportunities  for  addressing 
them  at  the  state  and  federal  levels- 

The  original  purpose  of  Medicaid,  as  articulated  in  1965.  was  to 
provide  access  to  mainstream  health  care  for  certain  low  income 
Americans,  in  particular  for  dependent  children  and  their  parent 
or  parents.  the  disabled  and  those  over  age  65. 

Congress  provided  states  the  opportunity  to  administer  Medicaid 
and  to  structure  it  to  reflect  the  priorities  and  interests  of 
each  of  the  states  and  territories.  the  result  has  evolved  into 
very  different  programs  in  each  of  the  states  and  territories, 
each  with  its  own  set  of  coverages.  payment  rates  and  eligibility 
levels.    no  two  of  the  56  individual  medicaid  programs  are  the 


What  is  common  to  each  Medicaid  Program,  however,  is  that  each 

SEEMS   TO  be   accomplishing    IN   LARGE   PART   THE   ORIGINAL   PURPOSE  OF 



Medicaid  success  can  be  measured  in  Michigan: 

*  Most  medical  providers  do  participate  in  Medicaid  and  do 
ACCEPT  Medicaid  payment  as  payment  in  full-    Access  to  health 





*  Medicaid  paid  for  delivering  over  40%  of  all  the  babies  born 
IN  Michigan  last  year.  This  amounted  to  over  62.000  of 
153,000  births- 

*  Medicaid  paid  pharmacies  for  almost  12  million  prescriptions 
FOR  Medicaid  patients  last  year. 

*  Medicaid  patients  who  have  chosen  to  enroll  in  HMOs  for  their 
mainstream  care  now  number  over  150.000.  an  additional 
100.000  have  enrolled  with  a  physician  under  the  michigan 
Medicaid  Physician  Sponsor  Plan. 

*  Medicaid  paid  for  12  million  patient  days  in  nursing  homes 
last  year.  medicaid  now  pays  for  all  or  part  of  the  care  for 
2/3  of  all  nursing  home  patients- 

*  Over   30.000  Medicaid   recipients  with  mental   health  needs 




*  Over  27,000  persons  received  personal  care  services  in  their 
OWN  homes,  helping  them  to  carry  out  the  normal  activities  of 
life  and  avoid  placement  in  more  restrictive  settings- 

*  medicaid  provides  catastrophic  coverage  for  such  services  as 
neonatal  intensive  care  and  organ  transplants-  michigan 
Medicaid  annually  is  providing  coverage  for  5,000  neonatal 
intensive  care  cases  (at  a  cost  of  $90  million)  and  150  organ 


MEDICAID  IN  Michigan  is  now  a  $3  billion  program-  The  Michigan 
MEDICAID  Program  serves  as  its  own  fiscal  intermediary-  Last 

year  the  program  processed  50  MILLION  CLAIMS-  THE  AVERAGE  TIME 

THE  Michigan  Medicaid  Program  is  less  than  17  days-  For 
physicians,  payment  is  made  on  the  average  within  19  days;  for 
pharmacies,  the  average  is  less  than  15  days- 

The  Michigan  Medicaid  Program,  like  other  state  programs,  carries 
out  its  duties  with  cost  efficiency  which  is  the  envy  of  the 
health  insurance  industry-    The  standard  measure  of  efficiency  in 




12  TO   15%   FOR   A  TYPICAL   HMO.   AND     UP   TO  APPROXIMATELY   30%  FOR 

commerical  insurers-  for  the  michigan  medicaid  program, 
administrative  costs  as  a  percentage  of  claims  paid  (at  medicaid 
rates)  were  1-9%  in  1990  (the  most  recent  year  for  which  complete 
data  are  available). 

notwithstanding  the  successes  and  accomplishments  in  medicaid  in 
Michigan  and  other  states,  there  are  several  issues  and  problems 
currently  faced  by  medicaid  programs  which  must  be  addressed- 

1-    Increases  in  program  cost- 

Foremost  among  issues  is  the  seemingly  out-of-control  nature 
OF  Medicaid  costs- 

Medicaid  costs  are  breaking  the  bank  in  state  treasuries 
across  the  country-  medicaid  costs  in  michigan  are  no 
exception-  Medicaid  purchases  health  care  in  the  same 
marketplace  as  do  other  insurers,  self-insured  employers  and 
individuals.  as  we  all  know.  health  care  costs  have 
skyrocketed.  increasing  at  approximately  twice  the  rate  of 
other  prices.  health  care  expenditures  have  doubled  in  the 
last  five  years.  but.  because  of  the  need  to  balance  state 
budgets  and  through  creative  cost  containment  measures. 
Medicaid  programs  have  been  able  to  hold  down  costs  to  a 
lower  rate  of  increase;  the  average  medicaid  program  has 



58-688  0-92-4 


table  demonstrates  that.  had  michigan's  medicaid  costs 
increased  at  the  rate  of  general  medical  inflation.  michigan 
would  have  faced  $112  million  in  additional  costs  in  1989- 

nevertheless.  the  medicaid  program  has  become  the  largest 
single  expenditure  category  in  more  than  half  the  states 
(according  to  the  national  governors'  association). 
Sometimes  we're  not  sure  if  Medicaid  can  survive  the  budget 
OR  the  budget  can  survive  Medicaid.  In  Michigan, 
expenditures  have  increased  from  $1-5  billion  in  1985  to 
$3  billion  in  1991.  as  a  percent  of  the  state  budget, 
michigan's  experience  has  paralleled  that  of  most  states, 
increasing  from  about  9%  of  the  budget  in  1985  to  14%  of  the 
budget  last  year- 

In  reviewing  the  proposed  budget  for  fiscal  year  1992-93. 
which  was  submitted  by  the  governor  to  the  legislature 
earlier  this  month.  i  was  struck  by  the  extent  to  which 
medicaid  now  dominates  the  budget  for  the  department  of 
SOCIAL  Services,   medicaid  is  now  over  half  --  53%  —  of  the 






Because  of  these  budget  problems,  it  has  been  necessary  to 
consider  drastic  reductions  in  the  program  itself-  last 
year,  the  legislature  considered  and  adopted  a 
recommendation  to  substantially  scale  back  coverages  in  the 
Michigan  program.    Targeted  for  elimination  were  services 


such  as  wheelchairs,  prosthetic  devices,  orthotics,  speech 
therapy,  physical  therapy,  occupational  therapy,  podiatry 
and  chiropractic  services- 

After  the  legislature  had  adopted  this  budget,  we  were  able 
to  determine  that  all  of  these  cuts  would  not  be  necessary 
in  order  to  live  within  the  funds  which  had  been 
appropriated.  as  a  result,  actual  program  cuts  were  limited 
to  the  following:  all  dental  services,  including  dentures, 
for  adults;  podiatry  services;  chiropractic  services;  non- 
essential non-emergency  transportation  and  outreach  services 
for  the  epsdt  program.  in  addition,  the  copay  for 
prescribed  drugs  was  increased  from  50  cents  per 
prescription  to  sl-oo- 


Over  the  past  decade  Medicaid  has  implemented  virtually 
every  cost  containment  measure  that  held  promise  of 
controlling  costs. 



Literally,  there  are  very  few  options  left  that  states  can 
exercise  on  their  own. 

we  need  help. 

i  propose  to  the  committee  that  the  time  has  come  for 
Congress  to  examine  how  it  has  exacerbated  the  cost  problem 
through  unfunded  mandates.  and  for  congress  to  commit  to 
fully  fund  the  federal  responsibility.  including  the  recent 

The  PURPOSE  OF  Medicaid  is  too  important  for  states  to 

CARE.  We  wish  that  we  WERE  IN  A  BETTER  POSITION  TO 

THE  Congress  to  fund  the  program  fully  and  adequately  so 



Since  the  mid  1980s,  several  mandates  have  been  adopted  by 
congress  which  have  contributed  significantly  to  increases 
in  medicaid  costs- 



Since  1986,  Congress  has  mandated  new  Medicaid  expenditures 


*  Eligibility  expansions  for  pregnant  women  (to  133%  of 

THE  federal  poverty  LEVEL  (FPL),  AT  STATE  OPTION  TO  185Z 
58%  OF  THE  FPL) 

*  eligibility  expansion  for  children  up  to  age  6  (to 
133%  of  the  fpl,  an  increase  from  58%  of  the  fpl) 

*  Eligibility  expansion  for  children  from  age  7  to  18 

(TO   100%  OF   THE  FPL,    phased   IN  FROM  OCTOBER   1,    1990  TO 

include  all  children  born  after  september  30,  1983,  so 
all  children  below  the  poverty  line  up  to  age  19  will  be 
eligible  for  medicaid  by  the  year  2002). 

*  Coverage  expansions  for  children's  services  under 
EPSDT,   such  that  any  service  requested  by  an  EPSDT 


*  Service  expansions  for  nursing  home  services  requiring 
Medicaid  reimbursement  for  increased  nursing  home  staff 
and  other  services  above  that  which  was  the  community 
norm  for  many  facilities. 



•     Reimbursement  mandates  for  retrospective  full-cost 


Community  health  Centers.  Migrant  Health  Centers  and 
Health  Centers  for  the  Homeless. 

Many  of  these  mandates  have  had  the  objective  of  assuring 
health  care  for  otherwise  uninsured  low  income  children  and 
pregnant  women-   we  cannot  argue  with  this  objective- 

However,  this  improved  health  coverage  comes  at  a 
considerable  cost  which  states  cannot  now  afford- 

i  offer  as  one  specific  example  the  cost  of  expanded 
eligibility  for  pregnant  women  and  children  up  to  133x  of 
the  poverty  line  (at  state  option  up  to  185%  of  the  federal 
poverty  level) - 

michigan  adopted  the  option  of  185x  of  the  federal  poverty 

8  IS  PROJECTED  TO  COST  $100-3  MILLION  IN  FY  1992- 



States  are  staggering  under  the  weight  of  these  increased 
COSTS.  If  Congress  is  to  force  states  to  adopt  particular 
POLICIES,    Congress   must   be   willing   to   fully   fund  the 


Managed  care. 

Our  fiscal  year  1993  budget  is  also  predicated  on  a 
significant  managed  care  expansion.  michigan  has  been  a 
leader  in  managed  care  for  many  years-  our  first  hmo 
contract  was  signed  in  1972-  michigan  inaugurated  one  of 
the  nation's  first  primary  care  case  management  programs  in 
1982-  This  approach,  which  in  Michigan  is  called  the 
Physician  Sponsor  Plan  (or  PSP),  is  designed  to  ensure  that 
Medicaid  patients  can  select  a  primary  care  physician  who 
has  agreed  to  provide  or  authorize  all  medical  care  required 
for  that  patient.  we  now  have  contracts  with  over  1,200 
doctors  who  serve  as  physician  sponsor/case  managers-  over 
100,000  medicaid  patients  are  now  enrolled  with  a  physician 
through  psp. 



Our  evaluations  document  the  benefits  of  managed  care  with 
respect  to  cost  savings,  access  and  quality  of  care- 
Specifically,  our  evaluations  show  that  patients  enrolled  in 
managed  care  incur  health  care  costs  approximately  10%  less 
than  that  of  patients  in  regular  fee-for-service  situations- 
Access  is  assured,  24  hours  per  day,  7  days  per  week,  per 
the  terms  of  the  contract  which  managed  care  providers  sign- 
Compliance  with  the  access  provisions  of  the  contract  is 
enforced  through  regular  surveys  and  follow-up  to  ensure 
that  genuine  access  does  exist- 

Our  evaluation  of  quality  was  conducted  by  the  Michigan  Peer 
Review  Organization-  MPRO  looked  at  the  medical  records  of 
patients  in  managed  care  and  those  who  were  not,  and 
concluded  that  Medicaid  patients  in  a  managed  care  situation 


We    have    found    the    benefits    of    managed    care    to    BE  SO 

compelling  that  we  have  charted  a  course  to  enroll  all 
950,000  Michigan  Medicaid  patients  in  managed  care  over  the 
next  2  years-  this  means  we  have  taken  on  the  ambitious 
challenge  of  enrolling  700,000  medicaid  patients  who  now 
receive  care  in  the  fee-for-service  system-  throughout 
1992,  we  are  marketing  medicaid  to  the  11  michigan  hmos  with 


whom  we  do  not  yet  have  a  contract.  and  we  are  working  with 
the  medical  community  to  lay  the  groundwork  for  signing 
contracts  under  the  physician  sponsor  plan  with  physicians 
across  the  state-  our  goal  is  to  enroll  an  additional 
100.000  Medicaid  patients  in  managed  care  situations  by  next 
October  1-  To  do  so  will  involve  enrolling  all  the 
remaining  100.000  Medicaid  eligibles  in  Wayne  County  who  are 

NOT  yet  in  managed  CARE-  BEGINNING  NEXT  FALL.  WE  WILL  BEGIN 



IN  OUR  WAY.  Rather  than  promoting  managed  care,  the  federal 
government  is  acting  as  an  uncooperative  partner-  i  call 
your  attention  to  s-  2077  introduced  by  senator  moynihan. 
That  legislation  would  amend  Sections  1902  and  1903  in  such 
a  way  as  to  allow  medicaid  programs  to  operate  case 
management  systems  more  effectively.     Specifically,  this 



waiver  requirement,  and  it  would  simplify  the  hcfa  approval 
requirement  on  hmo  contract  renewals-  we  need  the 
flexiblility  allowed  by  s-  2077  to  implement  our  managed 
care  programs. 

4.   drug  rebate  program- 

Congress  should  be  commended  for  their  efforts  to  reduce 
Medicaid  pharmaceutical  costs.  We  wholeheartedly  agree  that 
Medicaid  should  receive  discounts  available  to  hospitals  and 
hmos.  however,  the  obra  90  drug  rebate  program  has 
potential  to  complicate  rather  than  simplify  a  state's 
ability  to  determine  cost-effective  drug  coverages  and  to 
negotiate  pharmaceutical  rebates- 

Along  with  implementing  manufacturer  rebates.  Congress 
imposed  many  new  requirements  on  states: 

*  most  new  products  must  be  covered  for  6  months  without 
prior  authorization 

*  pharmacy  prior  authorization  reviews  must  be  completed 
within  24  hours  and  the  state's  response  must  be  by 





Rebate  payments  will  be  significant-  However,  intensive 
program  audits  will  be  required  to  resolve  manufacturer 
disputes  on  utilization  data-  more  importantly.  congress 
has  taken  away  our  ability  to  manage  the  drug  program  and 
determine  coverages  based  on  input  from  our  own  state's 
medical  and  pharmacy  communities-  states  are  best  suited  to 
fashion  their  own  drug  programs,  to  establish  formularies 
and  to  conduct  utilization  review-  we  regret  this 
unfortunate  loss  of  state  flexibility- 

BoREN  Amendment. 

The  Boren  Amendment  specifies  that  Medicaid  reimbursement 
for  hospitals  and  nursing  homes  must  be  sufficient  to  meet 
the  full  costs  of  an  economically  and  efficiently  operated 




THAT  Medicaid  must  essentially  pay  full  costs  incurred  by 

THESE  institutions. 

Michigan   is  among  the  2-dozen  states  which  have  faced 


In  our  case,  a  court-ordered  settlement  increased  our 
inpatient  costs  by  $70  million  last  year.  and  our  nursing 
home  costs  by  approximately  $15  million  last  year. 

While  we  have  no  quarrel  with  the  goal  of  fair  payment  for 
quality  nursing  home  services.  we  believe  that  the  impact  of 
the  boren  amendment  has  the  effect  of  funneling  many  more 
resources  into  institutional  reimbursement.  often  at  the 
expense  of  community-based  alternatives.  which  do  not  have 
"mandate"  status.  michigan.  one  of  the  pioneers  in  the  use 
of  personal  care  for  community-based  services.  is  now  being 
forced  to  consider  limits  on  this  service. 

It  is  our  recommendation  that  Congress  specify  in  law  a 
clearer  definition  of  what  is  meant  by  "economic  and 
efficient."  This  would  allow  Medicaid  programs  to  establish 
reimbursement  methodologies  which  would  in  fact  encourage 
efficient  and  economic  costs.  and  could  have  the  result  of 
saving  tens  of  millions  of  dollars  currently  expended  for 
hospital  and  nursing  home  services- 



6.  Federal  requirements  for  documenting  provider  participation. 

Pursuant  to  Section  6402  of  OBRA  89>  state  Medicaid  programs 
are  required  to  document  the  participation  of  physicians  who 
provide  ob  and  pediatric  services-  the  intent  evidently  is 
to  document  that  sufficient  provider  participation  exists  to 
assure  access  to  ob  and  pediatric  care-  i  can  tell  you  that 
the  true  effect  of  this  section  is  to  foster  creativity  to 
generate  data  which  will  not  lead  to  improved  access  to 


Congress  would  be  better  served  to  seek  data  on  the  quality 
of  care.  the  accessibility  of  care,  and  the  satisfaction 
with  care  provided  to  medicaid  patients,  vis-a-vis 
mainstream  americans- 

7.  Federally-qualified  health  centers. 

Federally-qualified  health  centers  are  part  of  the  backbone 
of  health  care  delivery  for  low-income  americans-  these 
community  health  centers,  rural  health  centers  and  health 
centers  for  the  homeless  do  an  exemplary  job  of  serving 
Medicaid  and  non  Medicaid  patients  alike- 

OBRA  89  INCLUDED  requirements  that  Medicaid  reimburse  these 




Full-cost,  cost-based  reimbursement  has  the  wrong  incentives 
with  respect  to  efficiency  and  economy-  it  is  a  regressive 
step  to  require  that  medicaid  offer  such  full-cost 
retrospective  payment  in  the  case  of  federally-qualified 
health  centers.  notwithstanding  the  fine  job  which  they  do 
serving  this  patient  population- 







The  federal  government  has  the  right  and  responsibility  to 
audit  state  medicaid  programs-  states  contend  that  the 
audits  should  focus  on  items  that  adversely  affect  quality 
of  care  or  efficient  program  administration-  if  an  audit 
reveals  a  procedural  error  that  does  not  affect  quality, 
eligibility,  or  appropriateness  of  services  provided,  the 
state  should  be  allowed  an  opportunity  to  come  into 
compliance  without  financial  penalty- 

Senator  Chafee  has  introduced  S-  1240  which  addresses  these 
CONCERNS-  Under  the  bill,  states  would  be  allowed  to  come 
into  compliance  without  financial  penalty  in  situations 
where  hcfa  finds  that  the  infraction  does  not  adversely 
affect  quality  of  care  or  result  in  provision  of  medically 
unnecessary  or  inappropriate  services-  s-  1240  also  would 
prohibit  a  disallowance  when  a  state  operates  in  accordance 
with  an  approved  state  plan- 

we  believe  that  this  legislation  would  have  a  positive 
impact  on  oversight  of  the  medicaid  program  because  it  would 
focus  audits  on  those  areas  where  quality  of  care  is  in 
jeopardy  rather  than  where  large  disallowances  are  possible - 


States  need  more  latitude  to  shape  their  own  programs-  In 
order  to  implement  or  continue  to  operate  an  innovative  (and 






(mfcu).  which  is  housed  in  the  department  of  the  attorney 
General-  The  cooperative  relationship  between  the  MFCU  and 
OUR  MEDICAID  Program  is  exemplary- 



The  second  major  oversight  mechanism  is  the  Surveillance  and 
Utilization  subsystem  of  our  Medicaid  Management  Information 
System.   This  system  allows  analysis  of  patterns  of  provider 


funds  and  the  correction  of  the  actions  resulting  in 
overpayments.  in  addition.  doctors  may  be  excluded  from 
Medicaid  participation  and  recipients  placed  in  utilization 
control  programs  that  assure  access  only  to  absolutely 
necessary  services. 

Finally,  our  Medicaid  Program  provides  essential  information 
to  other  agencies,  such  as  the  state's  health  professions 
licensing  authorities,  the  dea,  the  office  of  the  u-s- 
Attorney  and  the  FBI.    Cooperation  with  these  agencies  has 


These  mechanisms  are  generally  effective   in  controlling 


Michigan  has  lost  millions  of  dollars  to  the  bankruptcy 
statutes  and  provider  bankruptcy  declarations  after  the 
state  has  obtained  recovery  judgements-  also.  federal 
policy  requiring  a  state  to  send  to  the  federal  government 
identified  overpayments  from  fraud  and  abuse  before  the 
state  collects  them  creates  problems.     given  the  often 







Act  (ERISA),  which  prohibits  states  from  regulating  self- 
funded     EMPLOYERS.         PREVENTS     STATES     FROM     ENACTING  SUCH 

legislation.  Because  most  of  the  large  employers  in 
Michigan  are  self-funded,  the  Medicaid  Program  loses  a 
significant  opportunity  to  collect  third  party  liability 
payments  from  absent  parents-  re  would  welcome  a  change  in 
erisa  to  make  it  possible  for  us  to  require  absent  parents 
to  provide  insurance- 




In  conclusion,  we  have  much  to  be  proud  of  in  the  Michigan 
Medicaid  Program.  In  the  face  of  continued  fiscal  constraints. 
WE  have  provided  payment  for  comprehensive,  mainstream  health 


Thank  you  for  the  opportunity  to  present  my  views-     I  would  be 




FISCAL  YEAR  1992  -  FISCAL  YEAR  1991 








1, 187, 612 





1  ,  1  J  J  ,  J  1  / 

i , bib , oU  /  , b jy 



















Recipients  =      Unduplicated    count    of    eligibles    who    received  at 
least  one  service 

Expenditures  do  not  include  capitation  payments 

Source:  HCFA-2082 



Medicaid  Recipient  Population 

Source:  HCFA-2082 

2,000,000     ,  ,  ,  ,  ,  , 

I          j          j          ;  ; 
1 ,800,000   !  i  !  I  

1 ,600, 000   I  I  I  I  I   

1 ,200,000 

1082  1883  1084  108B  1086  1  987  1068  1088  1  980  1  091 

IVIedicaid  Expenditures 

Source:  HCFA-2082 

si  .200,000,000   1  :  ,  I  ,  ! 

.  j 

81,000,000,000     I  •  i  I  !  I  I  !  1  

1982  1883  1684  1985  1986  1087  1986  1666  1880  108 





Physician  Visits  Per  Person 

Michigan  Medicaid  1980  -  1989 


8  f  

  ..  .     „  6.a  _  . 

,  AFDC  Adult  —   6.5 




1  h- 

3.6  AFDC  Child 

^       1980  1981  1982  1983  1984  1985  1986  1987  1988  1989  1990  1991 


—    AFDC  Adult       +   AFDC  Child 
Non-lnstitutionaiized  AFDC  Only 

Ratio  of  Physician  Payments  to  Charges 
Michigan  Medicaid  1980  -  1991 

MD  Payment  as  %  of  Charge 

1980  1981  1982  1983  1984  1985  1986  1987  1988  1989  1990  1991 


—  MD  Payments/Charges 

Michigan  Ciaima  Proceaaing  Data  for  MDa 



Mr.  DiNGELL.  We  very  much  appreciate  your  presence  and  your 
very  helpful  testimony.  I  am  sure  my  colleagues  will  have  a 
number  of  questions  they  will  want  to  direct  to  you.  I  recognize  my 
good  friend  from  Colorado,  Mr.  Schaefer. 

Mr.  Schaefer.  Thank  you,  Mr.  Chairman.  Dr.  Smith,  I  appreci- 
ate the  fact  you  are  here  today.  I  know  you  are  familiar  with  our 
State  of  Colorado,  and  you  are  welcome  to  keep  coming  out  as  you 
have  since  1982.  We  always  need  those  dollars  in  the  State.  Colora- 
do, for  example,  this  year,  if  I  am  not  mistaken,  was  about  $40  mil- 
lion short  on  Medicare.  This  caused  the  State  legislature  many  mo- 
ments of  anguish.  We  operate  on  a  balanced  budget  amendment  as 
many  States  do.  I  know  you  have  tried  a  lot  of  things  to  curb  the 
cost  increases  here  in  the  State  of  Michigan,  in  the  program,  but 
despite  your  efforts,  there  are  a  number  of  factors,  such  as  the 
policy  of  the  Federal  Government,  that  limits  the  degree  to  which 
States  can  control  the  cost  in  growth.  Is  that  correct?  You  might 
want  to  specify  on  that. 

Mr.  Smith.  Certainly  our  constraints  are  the  Medicaid  programs 
and  the  Federal/ State  partnership.  The  States  are  required  to  pro- 
vide coverage  for  a  certain  list  of  what  are  known  as  mandatory 
coverages,  and  have  the  ability  to  choose  from  a  list  of  33  of  what 
are  known  as  optional  or  nonmandatory  coverages,  things  such  as 
prescribed  drugs  or  physical  therapy,  just  to  name  a  couple  of  the 
so-called  options.  Plus  there  is  a  large  body  of  Federal  regulations 
which  control  and  constrain  what  a  State  can  do. 

We  are  continually  looking  for  more  effective  ways  to  provide 
care,  and  that  requires  us  to  seek  waivers,  and  the  waiver  process, 
as  I  indicated,  is  very  obtuse.  We  are  looking  for  ways — it  would 
help  us  a  lot  if  there  were  ways  to  streamline  that  particular  proc- 
ess so  we  can  do  things  which  are  more  innovative. 

It  would  also  help  us  if  some  of  the  constraints  in  terms  of  what 
we  had  to  cover  and  how  it  is  covered  could  be  reconsidered.  I  look 
just  as  an  example,  and  not  to  necessarily  endorse  every  aspect  of 
what  Oregon  is  doing,  but  what  Oregon  is  doing  is  appealing  to  a 
State  Medicaid  program  from  the  perspective  that  they  have 
looked  at  the  whole  body  of  what  can  be  done  in  a  health  care 
system,  and  have  taken  the  time  to  work  with  the  citizens  of  that 
State  to  create  a  prioritized  list.  This  isn't  one  person's  list.  This  is 
a  list  which  derived  out  of  a  lot  of  study  and  review  and  the  in- 
volvement of  literally  thousands  of  interest  groups  and  individuals 
in  that  State. 

And  what  they  have  done  is  to  say,  everything  that  a  physician 
does  isn't  necessarily  as  effective  and  necessary  as  other  things 
which  a  physician  might  do.  And  so  they  have  been  able  to  say 
some  things  should  be  covered  and  some  things  can  be  done  more 
effectively  if  they  are  done  another  way.  They  have  drawn  a  line 
and  said,  we  are  not  going  to  cover  everything,  but  we  are  going  to 
cover  everybody  below  the  poverty  line. 

So  they  have  raised  their  eligibility  level.  That  kind  of  innova- 
tion, again,  I  think  what  needs  to  be  done  is  that  States  should 
have  the  ability  to  design  the  system  which  best  reflects  the  prior- 
ities and  interests  of  the  policymakers  in  that  State.  But  that  is  a 
very  fascinating  experiment,  and  right  now  it  is  not  allowed  with- 
out some  special  consideration. 


I      Mr.  ScHAEFER.  One  of  the  concerns  I  have  always  had  is  regard- 
ing the  health  care  for  our  senior  citizens.  I  know  a  number  of  doc- 
tors I  have  talked  to  in  Colorado  have  shown  me  the  costs  of  an 
examination  of  one  kind  and  what  their  reimbursement  is.  My  fear 
is  we  are  going  to  have  more  and  more  physicians  drop  off,  and  we 
are  going  to  reduce  the  assistance  to  the  people  who  are  going  to 
'    provide  the  service  to  these  individuals.  As  a  matter  of  fact,  it  is 
I   against  the  law,  but  a  lot  of  their  senior  patients  know  that  this 
I   rate  difference  is  there,  and  they  want  to  pay  their  doctor  cash  to 
I   make  it  up  so  that  they  will  keep  seeing  them.  Of  course,  that  is 
!   illegal,  and  no  one  I  know  is  doing  this. 

This  is  a  major  concern  of  mine.  Is  this  a  concern  here  in  the 
State  of  Michigan? 

Mr.  Smith.  What  is  our  concern  is  that  pajnnent  rates  have  not 
kept  up  with  the  rate  of  inflation.  I  have  a  chart  which  shows  how 
Medicaid  charges  as  a  result  of  what  doctors  charge  has  changed 
I   over  the  last  10  years.  Ten  years  ago  our  payments  were  about  60 
j   percent  of  what  physicians  charged.  Last  year  it  dropped  down  to 
i   36  percent.  We  just  recently  had  a  fee  increase  which  would  take  it 
I   back  up  to  around  40  percent.  But  still  you  can  see  there  has  been 
a  very  significant  drop  in  what  Medicaid  pays,  not  just  in  absolute 
numbers,  but  relative  to  what  the  market  is. 
Mr.  ScHAEFER.  Do  you  have  this  fear  that  I  do? 
Mr.  Smith.  I  think  it  is  a  very  legitimate — it  is  not  just  a  fear,  it 
is  a  fact.  Physicians  in  various  parts  of  the  State  have  chosen  to 
I   limit  Medicaid  practice,  and  in  some  cases  departicipating  com- 
pletely from  the  Medicaid  program  because  what  Medicaid  pays  in 
their  view  is  not  sufficient  to  cover  their  actual  costs. 

Mr.  ScHAEFER.  This  Federal  mandate  situation,  would  you  agree 
or  not  that  the  Federal  mandates  imposed  by  us  in  Washington  are 
the  most  significant  factors  in  these  increasing  costs? 

Mr.  Smith.  There  is  no  doubt  about  it.  The  mandates  have  in  fact 
increased  costs.  Again,  I  think  the  important  thing  to  keep  in  mind 
is  that  States  are  able  to  carry  out  the  program,  and  some  of  the 
mandates  have  been  positive  in  their  ultimate  impact,  but  States 
simply  do  not  have  the  fiscal  capacity  to  absorb  the  cost.  That  is 
what  the  issue  is. 

Mr.  ScHAEFER.  I  was  in  my  own  doctor's  office  not  too  long  ago, 
getting  a  physical  exam  and  all  that,  and  of  course  when  we  walk 
into  one,  the  first  thing  they  say  is,  wait  a  minute,  I  want  to  talk  to 
you  about  something.  They  showed  me  the  form  which  has  to  be 
adhered  to  and  filled  out  every  time  a  patient  comes  in  under  this 
particular  program.  It  is  astronomical,  and  if  there  is  one  mistake 
made,  they  are  in  violation  of  the  law.  Has  this  been  a  common 
I    concern  here,  too? 

Mr.  Smith.  There  is  a  lot  of  concern  nationally  about  what  I  will 
I    call  a  common  claim  form.  There  are  about  1,400  different  insur- 
j    ance  companies  and  health  plans,  many  of  which  have  different 
j    health  forms.  We  do  need  to  have  some  commonality  here.  In  this 
I    State  we  have  worked  very  carefully  with  Blue  Cross,  Medicare 
I    and  Medicaid,  which  together  have  the  vast  majority  of  the  busi- 
ness, and  we  have  reached  commonality  of  the  forms.  But  it  is  an 
important  issue  in  terms  of  minimizing  the  administrative  costs  of 
the  providers. 




Mr.  ScHAEFER.  As  these  mandates  have  increased,  Federal  funds 
have  decreased,  is  that  correct,  in  most  cases? 

Mr.  Smith.  Federal  funds  have  not  kept  pace  with  the  demands, 
that  is  correct. 

Mr.  ScHAEFER.  So  this  leads  you  into  sort  of  a  problem  here,  as 
well  as  in  other  States? 
Mr.  Smith.  That  is  correct. 

Mr.  ScHAEFER.  Let's  get  to  the  drug  rebate  issue.  You  said  that 
the  Federal  Government's  so-called  drug  rebate  program  was  de- 
signed to  save  money,  but  has  actually  cost  the  Medicaid  program 
more  money.  You  cited  a  large  number  of  administrative  problems 
with  it.  Are  you  saying  you  believe  this  will  cost  you  more  because 
of  the  administrative  burden,  or  you  can  call  it  the  hassle  factor? 

Mr.  Smith.  The  hassle  factor  is  a  mess.  We  have  got  new  author- 
ity to  obtain  new  staff  through  the  legislature  in  order  to  adminis- 
ter this.  I  think  it  is  very  important,  and  Congress  was  on  the  right 
track  trying  to  control  drug  costs,  which  have  been  one  of  the  fast- 
est rising  components  of  Medicaid  and  other  health  programs 
across  the  country. 

In  the  effort  to  try  to  get  Medicaid  a  best  price,  there  have 
been — there  were  conditions  placed  on  that,  which  limit  a  State's 
ability  to  control  the  costs  in  a  most  effective  way,  to  look  at  what 
are  the  most  effective  pharmaceutical  products  that  could  be  cov- 
ered, to  look  at  appropriate  utilization  controls  or  prior  authoriza- 
tion techniques  that  may  be  appropriate  to  specific  products.  All  of 
those  options  have  in  essence  been  taken  away  by  this  new  con- 
straint associated  with  the  drug  rebate. 

Don't  get  me  wrong,  the  drug  rebate  will  be  significant,  in  this 
State  possibly  $30  million  a  year  return  to  the  State,  95  percent  of 
which  will  be  shared  back  with  the  Federal  Government.  But  it 
is — the  strings  attached  to  it  do  create  quite  an  administrative 

Mr.  ScHAEFER.  So  the  strings  attached  to  it  is  not  allowing  it  to 
work  to  the  degree  we  would  like  it  to  work? 
Mr.  Smith.  That  is  correct. 

Mr.  ScHAEFER.  Mr.  Chairman,  I  will  pass  it  on  now. 

Mr.  DiNGELL.  Appropriate.  The  Chair  recognizes  now  my  good 
friend  from  Michigan,  Mr.  Upton. 

Mr.  Upton.  Thank  you.  Dr.  Smith,  one  of  my  focuses  as  well  as 
the  subcommittee's  focus  is  ferreting  out  fraud,  waste  and  abuse. 
Last  year  we  had  some  sterling  testimony  from  the  FBI,  the  Inspec-  } 
tor  General  of  HHS,  as  well  as  other  witnesses  around  the  country,  : 
and  I  think  it  was  even  in  the  chairman's  opening  statement  about 
as  high  as  15  percent  of  Medicare/Medicaid  expenditures  are  fraud-  i 
ulent.  i 

And  as  we  have  found  out  from  our  hearing  last  year,  with  | 
regard  to  what  the  witnesses  told  us,  the  bulk  of  the  Medicaid  i 
fraud  has  not  been  perpetrated  by  the  participants  of  the  program, 
hut  rather  by  physicians,  even  hospitals,  large  networks  of  pharma- 
cies, drug  diverters,  ambulance  service  companies,  a  whole  host  of  j 
different  associations  who  you  might  otherwise  suspect  on  the  sur-  | 
face.  j 

One  of  the  things  I  am  interested  in,  I  know  the  subcommittee  is  \ 
as  well,  is  what  has  Michigan  done,  what  has  the  State  of  Michigan  1 


done  to  identify,  A,  the  cost,  and  B,  what  steps  are  being  taken  in 
terms  of  cases?  How  do  you  go  about  determining  the  level  of  abuse 
in  the  system,  and  what  are  some  of  the  things  you  and  the  admin- 
istration are  doing? 

Mr.  Smith.  Well,  Congressman  Upton,  you  are  asking  a  question 
about  a  very  important  part  of  Medicaid  activity.  Fraud  and  abuse 
are  two  very  difficult  areas  to  get  after  and  come  to  a  specific 
number  to  quantify. 

I  have  seen  estimates  up  to  15  percent.  It  doesn't  matter  what  it 
is,  if  there  is  anything  at  all  going  on,  it  is  too  much.  We  have  a 
number  of  efforts  to  try  to  identify  it  and  put  the  information  in 
the  proper  hands  so  that  prosecution  or  recovery  or  whatever  the 
appropriate  action  may  be  actually  does  take  place. 

There  is  a  very  organized,  systematic  process  for  analyzing 
claims  which  come  in— every  claim  that  comes  in  is  subject  to  ap- 
proximately 400  edits  through  our  system  before  it  does  get  paid. 
In  the  course  of  going  through  that  process,  the  computer  does  a 
lot  of  analysis  and  identifies  situations  which  may  appear  to  merit 
further  review. 

We  have  staff  which  take  a  look  at  that  and,  through  that  proc- 
ess, a  number  of  situations  may  result  in  further  investigative 
review  and  action.  At  the  same  time,  a  lot  of  the  information 
comes  to  us  by  way  of  phone  calls.  Someone  sees  or  becomes  aware 
of  a  situation,  and  they  will  call.  We  have  toll-free  hot  lines  for  this 
purpose  and  that  information  is  passed  along. 

There  is  a  special  Medicaid  fraud  unit  within  the  Michigan 
Deputy  Attorney  General.  We  do  have  cooperative  arrangements 
with  the  DEA,  the  FBI,  other  major  players  such  as  Blue  Cross,  so 
it  is  possible  to  take  a  look  at  it. 

All  I  can  say  to  you  is  it  is  a  very  important  activity.  It  is  abso- 
lutely essential  we  identify  and  prosecute  and  control.  There  is  so 
much  money  involved  in  this  program  that  sometimes  people  get  a 
little  greedy.  When  that  happens,  we  have  to  be  able  to  identify  it 

Mr.  Upton.  Are  you  satisfied  with  the  degree  of  success  the  State 
has  had? 

Mr.  Smith.  I  think  there  is  always  room  for  additional  success  in 
this  area.  We  never  seem  to  have  as  many  resources  as  we  would 
like  to  have  in  order  to  identify  what  is  out  there.  The  cost-benefit 
ratio — ^benefit-cost  ratio  is  very  high.  The  return  is  very  high,  given 
the  amount  of  resources  we  do  invest. 

Mr.  Upton.  One  other  area  I  would  like  to  focus  on  in  terms  of 
my  questions:  I  travel  around  my  part  of  the  District;  which  as  you 
know  is  southwestern,  south  central  part  of  the  State.  As  I  meet 
with  the  medical  societies,  county  associations,  my  hospital  admin- 
istrators, one  of  whom  is  here  today;  my  nurses,  patients,  the  level 
of  frustration  is  very  high.  Our  family  just  had  a  new  child  and 
Blue  Cross-Blue  Shield  forms  are  something  else  to  try  to  under- 
stand, to  figure  out  where  you  send  them. 

The  level  of  frustration  and  the  lack  of  standardization,  whether 
they  be  for  an  elderly  person  having  difficulties  to  see  the  forms,  or 
perhaps  even  understand  them,  is  the  highest  that  I  can  imagine.  I 
would  be  interested  in  what  steps  you  would  encourage  us  to  take 
back  with  us.  What  are  some  of  the  steps  you  are  trying  to  under- 


take  within  the  State,  both  to  standardize  those  forms,  to  expedite 
the  payment  to  the  individuals,  because  it  is  a  nightmare. 

I  am  a  cosponsor  of  H.R.  2625. 1  don't  know  most  bill  numbers  off 
the  top  of  my  head,  but  I  have  received  hundreds  of  letters  from 
physicians  in  my  District.  I  imagine  many  of  us  on  this  committee 
are  also  cosponsors  on  this  bill  to  reduce  paperwork  burdens  on 

As  you  look  at  a  number  of  different  proposals,  pay  or  play. 
Many  of  them  in  terms  of  a  cost  saving  to  have  a  standardized  type 
of  form.  What  dramatic  steps  have  you  taken,  and  what  would  you 
encourage  us  to  do  to  try  and  achieve  that  same  goal? 

Mr.  Smith.  Again,  we  are  talking  about  the  possibility  of  simpli- 
fjdng  the  administration.  The  cost  of  health  care  right  in  the  doc- 
tor's office,  where  the  billing  form  is  actually  filled  out,  it  has  to  be 
very  frustrating  in  a  group  practice  of  any  size,  you  will  have  a 
billing  person  that  specializes  in  Medicare,  another  one  specializes 
in  Medicaid,  another  specializes  in  Blue  Cross,  and  another  in 
Aetna  and  Prudential. 

It  doesn't  make  sense.  It  would  serve  everyone's  interest,  provid- 
ers and  third-party  payers,  if  we  had  a  form  that  could  be  used  by 
everyone.  A  lot  of  resources  have  been  put  into  this  issue  in  the 
past,  and  we  have  been  frustrated  because  the  needs  of  one  third- 
party  payer  for  information  or  to  have  a  particular  form  is  such 
that  it  might  preclude  the  adoption  of  a  form  that  might  be  useful 
for  other  persons. 

In  the  case  of  Medicaid,  for  example,  the  efficiency  of  our  system 
is  dependent  on  having  a  form  that  is  optically  scanable  so  it  can 
be  mechanically  read  and  put  into  the  system.  A  lot  of  the  forms 
that  have  been  proposed  so  far  have  not  been  optically  scanable. 

I  think  technology  is  coming  up  to  a  point  where  we  should  be 
able  to  take  a  look  at  it.  We  certainly  support  the  principle. 

Mr.  Upton.  Thank  you.  I  yield  back. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman.  The  gentleman 
from  Michigan,  Mr.  Conyers. 

Mr.  Conyers.  Thank  you  very  much.  Chairman  Dingell.  I  want 
to  welcome  Dr.  Smith,  and  indicate  this  is  our  very  first  and  formal 
way  of  meeting,  and  that  you  have  figured  into  my  work,  my  ap- 
praisals and  my  dreams  for  much  more  than  you  know,  sir.  Now 
we  are  together,  and  I  am  very  happy  for  that,  because  in  your 
tender  mercies  lie  the  future  of  the  North  Detroit  General  Hospital 
and  Southwest  Detroit  Hospital. 

I  believe  you  have  met  the  trustee  of  Southwest  Hospital,  Dr. 
William  Anderson,  a  good  friend  of  both  of  ours,  in  trying  to  fash- 
ion a  way  to  pull  Southwest  out  of  Chapter  11.  One  of  the  ways 
that  John  Gorman  on  my  staff  has  recommended,  is  that  if  we 
move  toward  this  Federal  qualified  health  center  concept  in  an 
effort  to  keep  these  facilities  open,  and  if  we  can  maintain  their 
hospital  status  and  add  this  community  health  center  concept,  your 
office  would,  of  course,  be  very  important  in  that  effort.  We  are 
grateful  to  have  you  here  and  to  be  working  along  with  you  on  this 

Problem:  Even  if  we  reimburse  the  Medicare  and  Medicaid  pa- 
tients at  100  percent  of  reasonable  cost,  as  mandated  by  law  for 
these  health  centers,  I  have  been  told  that  you  have  some  reserva- 


tions  about  that  as  a  practice,  and  I  would  like  you  to  address  that 
at  this  point. 

Mr.  Smith.  Sure.  Thank  you,  Congressman  Conyers.  I  do  want  to 
say,  first  of  all,  we  are  very  pleased  to  have  a  chance  to  resolve  the 
issues  with  North  Detroit  and  South  Detroit.  We  are  happy  to  work 
toward  the  resolution. 

The  issue  which  you  raised  with  respect  to  federally  qualified 
health  centers  and  the  reimbursement  which,  let  me  say,  the  spe- 
cial reimbursement  provisions  which  were  specified  in  OBRA  89  for 
those  community  health  centers,  migrant  health  centers,  rural 
health  centers  that  qualify  at  the  so-called  FQHC's,  what  Congress 
did  in  that  provision  was  to  specify  that  these  centers  are  entitled 
to  full  cost  reimbursement,  unlike  other  Medicaid  health  care  pro- 

My  concern  is  simply  one,  as  a  matter  of  health  care  policy  in 
general,  we  have  been  moving  away  from  full  cost  retrospective  re- 
imbursement for  all  the  other  providers  under  Medicaid,  because 
the  incentives  of  that  kind  of  a  system  are  not  those  which  might 
encourage  economy  and  efficiency. 

We  would  like  to  have  a  reimbursement  system  because  it  is  one 
of  the  most  powerful  ways  we  can  bring  about  a  cost-effective 
health  care  system.  We  like  to  have  a  system  which  encourages  the 
efficient  delivery  of  health  care. 

Our  only  concern  has  to  do  with  that  special  classification  of 
them  as  being  entitled  to  full  cost  retrospective  reimbursement.  We 
have  no  qualms  whatsoever  of  the  mission  and  accomplishments  of 
federally  qualified  health  centers.  They  are  doing  a  great  job  serv- 
ing the  poor  and  low-income  populations  of  this  State.  I  believe 
there  are  22  such  centers  currently  qualified,  and  anything  we  can 
do,  again,  to  support  them  we  are  happy  to  do.  That  is  the  only 
concern.  That  is  the  law,  and  we  are  happy  to  comply  with  the  law 
as  it  is  right  now,  and  we  are  doing  so. 

Mr.  Conyers.  As  one  of  the  supporters  of  that  provision,  may  I 
respectfully  point  out  to  you  that  that  incentive  was  built  in  be- 
cause we  need  these  centers  so  desperately.  There  is  an  absolutely 
urgent  need  in  rural  and  urban  areas  to  do  that,  and  that  is  why 
we  made  this  the  only  exception  in  Federal  health  regulation  and 

Now  that  we  have  breached  that,  here  is  the  next  problem  in 
this  possible  reconfiguration  at  these  facilities.  If  you  come  into, 
let's  say,  this  prospective  new  health  center  arrangement  at  these 
facilities,  and  you  don't  have  Medicare  and  you  don't  have  Medic- 
aid, which  60  percent  of  the  eligible  don't  have,  then  guess  what? 
We  are  building  a  grave  site  over  this  community  health  center, 
because  many,  if  not  most  of  the  people,  will  come  in  uninsured, 
uncovered  by  these  two  modest  provisions. 

And  it  is  there  I  have  begun  to  sleep  less  comfortably  in  my  bed 
at  night.  I  mean,  we  take  a  hospital  that  is  in  Chapter  11,  such  as 
North  Detroit  General  or  Southwest.  We  resurrect  it  as  a  commu- 
nity health  center  under  the  Federally  Qualified  health  center  stat- 
ute, and  then  we  find  out  there  is  a  big  financial  gap  here  because 
the  people  pouring  in  don't  have  anything  to  pay — 100  percent  of 
zero  is  still  zero. 


And  so,  you  know,  I  am  wondering  if  in  our  legislative  brilliance, 
we  are  leading  two  hospitals  in  desperate  circumstances  down  an- 
other path  in  which  they  are  going  to  get  in  trouble.  I  need  you  to 
worry  with  us  about  it,  because  it  is  unfair  to  be  just  leading  them 
from  one  dead  end  to  another. 

Mr.  Smith.  Congressman,  we  will  be  glad  to  work  with  you  and 
the  hospitals  and  the  U.S.  Public  Health  Service,  which  has  some 
authority  over  qualifying  these  as  well. 

Mr.  CoNYERS.  Now,  with  reference  to  fraud.  You  know,  it  is 
funny  now,  and  I  have  to  speak  frankly  to  you  about  this.  I  work  a 
lot  on  anti-drug  efforts  with  the  so-called  anti-drug  czar  in  Wash- 
ington, and  I  have  been  chairman  of  the  Criminal  Justice  Subcom- 
mittee in  Judiciary,  as  well  as  the  Crime  Subcommittee  at  different 

Twelve  percent  of  the  drug  users,  according  to  our  national  gov- 
ernment, are  minorities,  but  40  percent  are  the  ones  being  pros- 
ecuted. I  am  beginning  to  wonder  if  this  disparity  doesn't  translate 
into  the  question  of  Medicaid  fraud.  We  have  to  keep  the  questions 
of  race  very  much  in  front  as  we  move  in  on  these  malefactors. 

We  have  got  a  young  female  African-American  doctor  that,  as  of 
less  than  a  few  weeks  ago,  was  sentenced  to  12  years  in  prison.  I 
thought  she  would  be  at  this  hearing  to  hear  our  concerns  about 
her  case  and  this  problem,  but  Dr.  Robertson  is  no  longer  a  citizen 
with  rights.  I  wanted  to  bring  your  attention  to  the  growing 
number  of  complaints  that  I  am  receiving,  naturally,  about  the 
Medicaid  providers,  many  of  whom  are  minorities,  out  of  the  neces- 
sity of  the  reality,  who  will  be  prosecuted  on  very  minuscule  com- 
plaints, trivial  amounts  of  money,  misfilings  under  lots  of  paper- 
work, and  I  need  to  make  sure  we  are  sensitized  and  work  on  this. 

I  understand  we  are  bringing  in  50  more  FBI  Agents  to  prosecute 
Medicaid  fraud.  Well,  if  they  are  going  to  be  squirreling  around 
looking  into  the  inner  city  at  doctors  that  are  so  weighted  down 
with  Medicaid  cases  that  they  can  hardly  continue  to  practice,  we 
are  going  to  miss  the  boat  where  the  really  serious  cases  and  much 
greater  amounts  of  fraud  are  occurring — and  I  am  not  trying  to  ra- 
tionalize small  amounts  of  fraud. 

Any  violations  of  our  laws  are  violations  of  our  laws.  But  when 
the  emphasis  appears  to  be  misdirected  upon  minority  practition- 
ers and  pharmacists,  we  have  a  problem.  Has  this  been  brought  to 
your  attention  before  this  point? 

Mr.  Smith.  Congressman  Conyers,  actually,  it  was  just  1  or  2 
weeks  ago  this  issue  was  brought  to  my  attention.  It  caught  me  by 
surprise  at  the  time.  I  had  always  been  aware,  or  it  was  my  under- 
standing our  identification  processes  for  looking  at  who  we  would 
investigate  were  totally  colorblind. 

I  simply  asked  my  people,  could  there  possibly  be  any  basis  to 
this  suggestion  there  would  in  any  way  be  any  consideration  of  mi- 
nority status  or  any  other  kind  of  status,  and  I  was  assured — they 
were  surprised  as  I  that  such  a  suggestion  might  have  been  made. 

I  can't — as  I  understand  the  system,  I  can't  imagine  how  this 
kind  of  bias  might  creep  into  it,  but  I  am  certainly  happy  to  take  a 
further  look  at  it,  if  that  would  be  helpful.  The — our  resources  are 
so  limited,  as  I  suggested  before,  in  looking  at  the  whole  area  of 
fraud  and  abuse  that  there  is  no  way  we  are  going  to  focus  our  ef- 


forts  where  it  appears  that  it  might  be  unproductive.  So  I  am  a 
little  surprised  by  the  suggestion  that  this  may  be  going  on. 

Mr.  CoNYERS.  Well,  I  know  people  are  always  taken  by  surprise 
by  the  ugly  face  of  racism  in  America,  particularly  inside  our  own 
government.  Unfortunately,  I  have  spent  more  than  two  decades 
working  on  that.  But  I  have  a  report  on  this  that  I  will  begin  to 
acquaint  you  with.  It  was  prepared  by  Dr.  Norman  Clements,  a 
professional  person  who  himself  has  been  the  object  of  what  were 
claimed  to  be  unfair  investigations  into  Medicaid  health  care  pro- 

Finally,  are  you  aware  of  the  GAO  study  that  I  initiated  on  the 
Medicaid  third-party  reimbursement  problem  with  Michigan  Blue 
Cross-Blue  Shield? 

Mr.  Smith.  I  am. 

Mr.  CoNYERS.  You  are  aware  of  this  problem.  Could  you  give  us  a 
capsule  report  on  how  the  question  of  the  millions  of  dollars  of  re- 
imbursement due  to  the  Medicaid  program  are  involved  there,  and 
how  it  is  coming  along  under  your  command.  I  realize  you  have 
only  been  in  this  capacity  for  a  relatively  short  period  of  time. 

Mr.  Smith.  I  will  be  glad  to  bring  you  up  to  date.  The  issue  here 
is  finding  a  way  to  make  sure  Medicaid  only  pays  what  it  is  respon- 
sible for.  Where  there  is  a  third-party  payer,  such  as  Blue  Cross, 
who  has  primary  responsibility.  Medicaid  is  the  last  payer,  last 

The  issue  here,  I  believe,  if  I  can  summarize  it  briefly.  Blue 
Cross-Blue  Shield  of  Michigan  is  the  major  payer  in  this  State,  so 
as  it  turns  out,  a  significant  number  of  not  large — a  significant 
number  of  Medicaid  patients  have  dual  coverage  under  Blue  Cross 
and  Medicaid. 

The  Blue  Cross  coverage  may  come  about  because  the  father, 
before  a  divorce,  is  employed  by  Greneral  Motors,  for  example,  and 
as  part  of  the  court  child  support  order,  the  health  care  coverage  is 
continued  while  the  child  is  a  minor. 

We  have  worked  with  Blue  Cross  to — in  every  way  possible,  and 
as  you  suggested  before  lunch,  including  lawsuits,  to  try  to  make 
sure  that  the  Blue  Cross  liability  is  fully  paid. 

We  have  had  in  the  last  2  months  formal  correspondence  be- 
tween Mr.  Whitmer,  the  President  of  Blue  Cross-Blue  Shield,  and 
Dr.  Miller  on  this  subject.  We  have  recently  been  able  to  acquire 
the  reports  which  we  had  been  expecting  last  since  last  fall.  We  are 
in  the  process  of  looking  at  those  reports,  and  to  make  sure  the  full 
and  complete  Blue  Cross  liability  is,  in  fact,  paid.  We  will  be  work- 
ing with  the  Auditor  General  in  this  State  to  make  sure  what  we 
have  is  exactly  what  we  need,  and  it  has  been  processed  correctly. 

Mr.  CoNYERS.  I  thank  you  very  much.  There  was  always  the  com- 
puter problem,  which  I  found  an  incredible  alibi.  It  was  explained 
to  me  that  the  Medical  Services  Administration  didn't  have  the  ca- 
pability to  put  together  a  computer  that  could  track  the  costs, 
which  even  as  a  computer-illiterate  Member  of  Congress,  I  found 
disturbingly  unrealistic. 

I  had  people  piously  come  into  my  office  more  times  than  I  care 
to  tell  you  about  sajdng  that  as  soon  as  you  get  the  computer,  this 
is  going  to  be  simple.  And  I  am  almost  afraid  to  ask  you  if  you  ever 
got  the  computer,  but  I  am  going  to  ask  you  an3rway. 


Mr.  Smith.  We  have  a  problem  of  one  computer  talking  to  an- 
other, one  talking  the  same  language  as  another.  We  have  different 
kinds  of  computers  between  Department  of  Social  Services  and 
Blue  Cross.  Therein  lies  a  serious  issue.  We  have  worked  out  these 

Mr.  CoNYERS.  The  chairman  is  raising  his  gavel.  I  don't  know  if 
it  is  to  strike  me  or  tell  me  the  time  is  up.  I  yield  back  the  balance 
of  my  time.  Thank  you,  Mr.  Chairman. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman. 

Doctor,  as  you  stated,  Michigan  is  not  alone  in  fighting  Medic- 
aid's biggest  single  drain  on  its  budget.  You  specified  you  reduced. 
You  also  testified  there  has  been  significant  reductions  in  the  fund- 
ing levels  to  a  number  of  Medicaid  programs,  and  a  number  of 
these  funds  include  some  key  preventive  programs  for  both  chil- 
dren and  adults;  for  example,  60,000  low-income  children  no  longer 
have  access  to  health  screenings,  including  immunization,  hearing 
and  vision  tests,  and  psychological  assessments.  Is  that  correct? 

Mr.  Smith.  Mr.  Chairman,  that  which  you  are  referring  to  would 
be  the  EDSPC  outreach,  the  early  periodic  screening  diagriosis  and 
treatment  program  is  an  important  component  of  Medicaid  pro- 
grams across  the  country.  It  specifically  serves  children,  and  it  is 
designed  to  do  exactly  those  things  which  you  just  described. 

Outreach  is  a  mandatory  portion  of  that  program,  meaning 
making  children  and  their  parents  aware  of  the  program,  making 
sure  they — arranging  transportation  as  it  may  be  necessary.  There 
are  many  ways  to  carry  out  outreach. 

One  of  them  has  been  a  contract  with  the  Department  of  Public 
Health  which  has  been  in  the  amount  of  $5  or  $6  million  through 
which  they  would  arrange  scheduling  and  transportation  and  so  on 
for  the  children  to  come  in. 

There  has  been  a  fear  which  has  not  yet  materialized  to  the 
extent  you  just  described,  that  because  the  outreach  funds  were  not 
there,  that  people  would  not  be  able  to  come  in.  I  have  seen  an  esti- 
mate of  the  size  you  just  mentioned  of  60,000  not  being  able  to 
come  in  as  a  result.  The  benefit  is  still  there.  That  has  not 

What  has  changed  is  the  ability — the  capacity  to  reach  out  and 
find  these  children  who  are  eligible  and  to  assist  them  in  making 
sure  they  do  keep  an  appointment  and  they  get  the  follow-up  serv- 
ices which  they  need. 

Mr.  DiNGELL.  Now,  Doctor,  prior  to  these  cuts,  Michigan  had 
been  one  of  the  country's  leaders  in  covering  optional  Medicaid 
services,  was  that  not  so? 

Mr.  Smith.  Michigan  covered  a  few  more  than  the  national  aver- 
age. There  are  33  optional  services,  Michigan  covered  27  of  them.  I 
think  the  most  any  State  covered  was  maybe  30  or  31,  but  at  the 
current  time,  we  are  pretty  close  to  the  median  of  all  States,  which 
is  24. 

Mr.  DiNGELL.  Now,  optional  services  included  such  things  as 
oxygen,  durable  medical  equipment,  vision  and  dental  services, 
nonambulance  medical  transportation,  physical  occupational 
speech  therapy,  hospice  care,  and  in  some  instances,  substance 
abuse  programs,  podiatry  and  chiropractic;  is  that  not  so? 

Mr.  Smith.  That  is  correct. 


Mr.  DiNGELL.  Are  those  eliminated? 

Mr.  Smith.  No,  they  are  not  eliminated,  all  of  them,  but  the  list 
which  you  just  described  is  a  list  which  was  part  of  the  budget  dis- 
cussions in  the  Michigan  Legislature. 

Representative  Hollister  would  have  been  in  a  better  position  to 
describe  the  discussions  that  took  place  in  the  legislature.  The 
elimination  of  those  services  was  part  of  the  executive  budget 
which  was  proposed  last  September  and  adopted  by  the  legislature 
last  September  for  our  fiscal  year,  which  began  on  October  1st. 

It  turns  out  that  after  that  budget  was  adopted,  we  took  a  look  at 
that  because  we  wanted  to  be  sure  we  covered  as  many  of  the  serv- 
ices that  could  be  within  the  funds  that  were  in  fact  appropriated, 
and  we  made  a  decision  to  include  all  of  the  services  as  continued 
coverages,  with  the  exception  of  dental  services,  podiatry,  chiro- 
practic, EDSPC  outreach,  and  some  substance  abuse  services  that 
had  been  provided  in  acute  setting. 

With  those  exceptions,  the  services  did  continue,  including  such 
things  as  durable  medical  equipment,  oxygen,  wheelchairs,  and  so 

Mr.  DiNGELL.  Now,  you  referred  to  HCFA's  waiver  process.  I 
would  like  to  hear  your  thoughts  on  that.  We  may  have  to  write 
you  a  letter  in  view  of  our  time  constraints  to  ask  you  additional 
questions  about  that.  But  that  has  been  a  significant  problem  for 
us  here  in  Michigan,  has  it  not? 

Mr.  Smith.  The  waiver  process,  Mr.  Chairman,  has  been  very  dif- 
ficult for  us  in  Michigan.  We  have  prided  ourselves  as  being  a  pro- 
gram that  tried  to  be  innovative  and  forward-looking  to  take  ad- 
vantage of  the  latest  policy  directions  so  we  could  have  as  tight  a 
program  as  possible.  To  do  that,  you  need  to  have  waivers. 

Notwithstanding  HCFA's  assurances  over  the  last  several  years 
that  the  waiver  process  would  be  streamlined,  the  fact  of  the 
matter  is  that  we  have  literally  spent  hundreds,  probably  thou- 
sands of  hours  trying  to  get  waivers  in  order  to  carry  out  these  pro- 
grams, the  home-community-based  waivers,  waivers  that  allow  us 
to  do  managed  care,  waivers  that  would  allow  us  to  serve  Medicaid- 
eligible  patients  in  their  home  instead  of  in  institutions,  things 
along  that  line.  And  the  process  is  simply  very,  very  obtuse. 

One  of  the  things  I  would  suggest  for  the  committee  to  look  at  is 
whether  some  of  these  programs  which  currently  require  waivers 
and  have  been  documented  as  effective  and  useful  programs  in 
State  after  State  shouldn't  just  be  optional  coverages  under  the 
program  so  the  State  could  opt  into  it  if  they  so  chose,  as  long  as 
they  met  certain  criteria. 

Mr.  DiNGELL.  Could  you  give  me  a  more  amplified  statement  on 
that  particular  point  about  converting  many  of  these  from  waiver 
programs  to  optional  programs? 

Mr.  Smith.  I  would  be  pleased  to  submit  that. 

Mr.  DiNGELL.  The  gentleman  from  Colorado? 

Mr.  ScHAEFER.  No  questions. 

Mr.  DiNGELL.  In  the  case  of  Oregon,  Oregon  wanted  to  go  to  a 
new  program  which  would  deal  with  health  care  delivery  to  every- 
one in  the  State.  They  sought  to  proceed  under  the  waiver  process. 
Are  you  aware  of  how  they  succeeded  or  failed  on  that  particular 

58-688  0-92-5 


Mr.  Smith.  Mr.  Chairman,  it  is  my  understanding  that  that 
waiver  is  still  under  consideration  with  HCFA,  and  a  decision  has 
not  been  made  yet  to  my  knowledge.  But  it  has  been  a  long  process 
for  Oregon  as  well. 

Mr.  DiNGELL.  What  do  you  think  of  the  Oregon  plan? 

Mr.  Smith.  I  give  a  lot  of  credit  to  the  people  of  Oregon  for 
taking  the  time  to  focus  on  a  way  to  more  effectively  deliver  health 
care,  to  try  to  find  a  way  to  look  at  that  health  care  which  is  most 
effective  so  that  scarce  tax  dollars  can  be  focused  on  those  things 
which  are  most  needed  and,  at  the  same  time,  structure  it  so  that 
everyone  up  to  the  Federal  poverty  level  would  be  covered. 

I  think  that  is  a  very  commendable  initiative.  The  fact  that  it 
has  involved  such  a  broad  spectrum  of  every  interest  that  could  be 
identified  within  Oregon  to  be  part  of  that  process  says  to  me  that 
the  process  itself  has  been  very  worthwhile  and  they  have  devel- 
oped a  proposed  plan  which  meets  the  priorities,  interests  and 
valuation  of  that  State.  And  I  would  commend  them  for  their 
effort,  and  I  wish  them  well.  I  hope  very  much  it  works. 

Mr.  DiNGELL.  How  is  the  waiver  process  working  with  regard  to 
this  matter? 

Mr.  Smith.  It  is  my  understanding  that  the  waiver  process  has 
gone  very,  very  slowly  in  my  discussions  with  people  

Mr.  DiNGELL.  Is  it  so  slow  as  to  create  a  problem? 

Mr.  Smith.  So  slow  as  to  delay  their  proposed  implementation 
date,  yes. 

Mr.  DiNGELL.  Dr.  Smith,  the  committee  is  grateful  to  you  for 
your  very  helpful  testimony.  We  will  probably  have  some  questions 
,  by  letter.  If  you  would  like,  we  would  appreciate  being  able  to  do 

Mr.  Smith.  That  would  be  just  fine.  Thank  you  for  the  opportuni- 
ty to  speak  with  you  today. 

Mr.  DiNGELL.  Thank  you  very  much  for  your  assistance.  We  ap- 
preciate it  very  much.  Thank  you. 

The  Chair  announces  the  presence  of  a  valued  friend  and  distin- 
guished public  official,  Mr.  Edward  McNamara,  County  Executive 
of  the  County  of  Wayne.  Thank  you  for  being  with  us  today. 

Mr.  McNamara.  Thank  you. 

Mr.  DiNGELL.  Mr.  Conyers  and  I  know  of  your  many  accomplish- 
ments here  in  the  County. 


Mr.  McNamara.  Good  to  be  here.  I  appreciate  getting  on  as 
quickly  as  this.  I  am  not  sure  whether  I  am  busy  or  disorganized. 

Chairman  Dingell  and  honorable  members  of  the  committee,  I 
appreciate  your  invitation  to  testify  before  the  committee  on  the 
state  of  our  health  care  system  in  Wayne  County. 

As  you  examine  the  strengths  and  shortcomings  of  our  health 
care  delivery  system  across  America,  no  doubt  you  are  learning 
many  of  the  lessons  we  have  learned  here  in  the  Detroit  area  over 
the  past  decade.  The  benefits  of  the  world's  finest  medical  care  are 
becoming  available  only  to  an  ever-shrinking  group  of  our  citizens. 
Despite  skyrocketing  health  care  costs,  many  of  our  health  care 


providers  must  still  struggle  to  balance  their  bottom  lines,  and  our 
poorest  citizens  must  struggle  the  most  to  achieve  even  basic  levels 
of  health  care. 

In  Wayne  County,  which  is  home  to  the  City  of  Detroit  and  42 
other  communities,  we  are  well  acquainted  with  all  of  these  prob- 
lems. Six  years  ago,  health  care  costs  nearly  drove  Wayne  County 
out  of  business.  It  is  my  hope  that  by  sharing  with  you  some  of  our 
solutions  to  our  health  care  dilemma,  we  may  offer  some  ideas  for 
future  remedies. 

When  I  took  office  in  January  of  1987,  Wayne  County  had  a  defi- 
cit of  $135  million,  caused  almost  entirely  by  an  inefficient  system 
of  providing  mandated  health  care  to  the  county's  indigent  popula- 

Under  the  old  system,  indigent  persons  in  Wayne  County  were 
ineligible  for  most  types  of  medical  care,  except  emergency  room 
treatment  and  hospitalization.  Their  treatment  costs  were  fed  into 
the  bureaucracy  of  our  State  government,  which  processed  the 
bills.  Sometimes  it  took  months,  sometimes  years,  before  compen- 
sating providers  and  then  passing  the  bills  back  to  Wayne  County 
for  payment. 

Our  system  mandated  that  the  County  have  no  control  over 
treatment  and  no  role  in  controlling  costs.  All  we  were  allowed  to 
do  was  open  our  wallets  and  close  our  eyes.  That  system  tripled  our 
health  care  costs  in  only  5  years. 

Our  solution,  called  County  Care,  is  the  result  of  taking  back 
control  of  our  health  care  costs.  Together  with  the  State  legisla- 
ture, we  were  able  to  build  what  amounts  to  a  county-run  HMO  for 
43,000  poor  people.  Cost-controlling  incentives  for  patients,  for  gov- 
ernment and  providers  have  been  built  into  every  step  of  the  proc- 
ess. This  new  emphasis  on  cost  control  has  encouraged  responsible 

Profits  now  come  from  preventive  medicine,  since  we  pay  hospi- 
tals $77  per  month  per  person,  whether  that  person  has  a  checkup 
or  a  triple  bypass.  And  as  we  all  know,  it  is  cheaper  to  treat  some- 
one with  medication  for  high  blood  pressure  than  it  is  to  pay  the 
cost  of  emergency  room  treatment  and  a  hospitalization  for  a 
stroke  victim. 

The  results:  Preventive  care  is  up,  costs  are  down,  our  deficit  has 
been  eliminated,  and  Wayne  County  has  balanced  its  budget  for 
the  past  4  years.  And  our  coverage  has  not  led  anyone  to  stint  on 
care.  In  fact,  preventive  office  visits  have  increased  instead  of 
emergency  room  visits. 

As  a  public  official  with  an  eye  on  the  bottom  line.  County  Care 
makes  me  very  happy.  The  program  has  received  its  share  of 
awards  and  received  impressive  bipartisan  support  from  our  State 
legislature  and  Governor  John  Engler  last  year,  at  a  time  of  severe 
budget  cuts  across  the  State  of  Michigan. 

We  are  working  on  ways  to  expand  the  program  to  cover  the 
County's  working  poor.  We  believe  the  program  can  be  made  at- 
tractive to  small  businesses  who,  for  minimal  costs,  will  be  able  to 
offer  their  employees  an  attractive  benefit,  paid  health  insurance. 

As  I  said,  we  have  learned  from  all  of  this.  Our  most  important 
lesson  is  that  governments  usually  make  lousy  doctors.  We  only 
have  two  cures  for  the  problem  of  health  care  delivery.  We  either 


expand  our  bureaucracy  until  the  system  dies  of  bloat  and  poor  cir- 
culation, or  we  panic  and  amputate  every  program  in  sight.  In  both 
cases  we  forget  there  are  live  people  at  the  other  end  of  our  deci- 
sions, people  who  are  sick  and  will  only  get  sicker  unless  we  help. 

At  Wayne  County,  our  experience  has  taught  us  if  you  don't 
manage  your  health  care  costs,  they  will  manage  you.  Our  old 
system  practiced  management  by  default.  Sickness  forced  hospital 
visits.  Legal  obligations  forced  medical  treatment.  And  blind  bu- 
reaucracy forced  blind  payments. 

We  decided  not  to  put  up  with  that  bloat,  and  I  honestly  cannot 
understand  how  government  can  amputate  health  programs.  If  we 
cannot  care  for  the  least  among  us,  how  can  we  call  ourselves  civil- 

I  encourage  this  committee  to  give  more  thought  to  traveling  the 
same  road  we  did,  a  middle  road.  Managed  health  care  with  a 
strong  emphasis  toward  preventive  care  and  with  incentives  for 
good  performance  by  patients,  providers  and  government  has  given 
us  good  health  care  and  a  healthy  bottom  line. 

I  have  enclosed  a  summary  of  our  programs  and  welcome  your 

Mr.  DiNGELL.  Thank  you  very  much.  You  have  given  us  very 
helpful  testimony. 

I  would  note  your  program  is  an  extraordinarily  fine  program, 
well  run.  What  is  the  cost  of  that  program  per  person? 

Mr.  McNamara.  It  is  $77  per  month  per  person.  We  negotiate  for 
a  3-year  period.  We  have  four  health  care  providers,  so  there  is 
competition.  If  one  provider  says  I  can't  do  it  for  $77,  we  have 
three  others  who  say  they  can.  It  has  worked  very  well  for  us.  We 
started  out  at  $73  a  month,  and  we  have  had  a  couple  of  increases 
over  the  last  4  years  and  brought  it  to  $77. 

But  again,  we  know  what  it  is  going  to  cost  us,  and  these  health 
care  providers  know  that  if  they  can  keep  poor  people  healthy, 
they  are  going  to  make  more  money  and  let  those  poor  people 
become  ill  and  still  only  receive  the  $77. 

Mr.  ScHAEFER.  Thank  you,  Mr.  Chairman. 

Mr.  McNamara,  prior  to  you  coming  in,  I  read  your  statement, 
and  am  truly  impressed  with  what  you  have  been  able  to  accom- 
plish. You  are  to  be  commended. 

I  might  follow  a  question  the  chairman  asked;  $77  per  person. 
What  about  a  family?  What  about  a  family  of  four?  Is  there  a  re- 
duced rate  there? 

Mr.  McNamara.  If  they  qualify  as  indigents,  we  pay  based 
upon — now,  these  people  are  all  over  21  years  of  age,  and  they  go 
up  to  age  65. 

Mr.  ScHAEFER.  I  am  just  a  bit  confused,  though.  Are  you  still  in 
the  Medicaid  program? 

Mr.  McNamara.  In  the  Medicaid  program?  Oh,  yes.  In  fact  

Mr.  ScHAEFER.  The  reason  I  ask  is,  you  were  given,  apparently,  a 
lot  of  leeway  to  get  this  all  put  together  in  such  a  new  style. 

Mr.  DiNGELL.  Will  the  gentleman  yield? 

The  gentleman  is  giving  the  good  news.  Mr.  McNamara  is  giving 
the  bad  news.  Bad  news  is  this  program  is  functioning  pending  the 
request  for  a  waiver.  Fact  is,  this  program  is  functioning  with  no 
Federal  funds  at  all. 


Mr.  McNamara.  At  this  point,  it  is  State  and  county  funds,  but 
the  State,  because  of  its  financial  condition,  is  trying  to  move  this 
into  a  matching  arrangement  with  Federal  funds.  Just  as  Pennsyl- 
vania, for  instance,  has  done. 

Mr.  DiNGELL.  And  you  have  a  request  pending  for  waiver  at 

Mr.  McNamara.  That  is  correct. 

Mr.  DiNGELL.  If  that  waiver  is  not  granted,  what  then  happens? 

Mr.  McNamara.  We  are  back  to  the  State,  because  we  have 
43,000  individuals  who  have  to  have  health  care  one  way  or  the 
other.  We  start  a  body  count  then,  if  the  program  dissolves  itself. 

Mr.  ScHAEFER.  As  I  say,  we  are  talking  about  all  the  hoops  and 
hurdles  that  everybody  has  to  jump  through,  following  the  Medic- 
aid thing,  and  it  seems  to  me  you  just  completely  revamped  a  pro- 
gram. I  was  trying  to  figure  out  how  you  got  through  all  these 
hoops  and  hurdles.  So  it  has  been  clarified  to  me  now  that  you  are 
in  for  a  waiver  to  HHS. 

Mr.  McNamara.  We  are  now.  I  have  to  point  out  that  the 
County  is  not  diminishing  its  role.  It  is  not  diminishing  its  contri- 
bution. It  is  the  State  that  is  having  a  great  difficulty  with  its 
budget,  so  the  State  is  using  our  dollars  to  match  Medicaid  dollars 
in  order  to  fund  this  program  at  the  level  the  State  has  been  fund- 
ing it  in  previous  years. 

Mr.  ScHAEFER.  If  you  continue  with  what  you  are  doing,  they 
could  not  pick  this  up  in  Lansing  or  in  Ann  Arbor,  or  anyplace  else 
in  the  State,  as  far  as  counties — I  am  not  familiar  with  all  your 
counties,  but  

Mr.  McNamara.  Over  half  the  indigents  in  the  State  of  Michigan 
reside  in  the  County  of  Wayne.  So  when  you  take  the  other  83  or 
82  counties,  obviously  the  indigent  population  is  very  small,  and 
hospitals  have  less  of  a  problem  just  absorbing  that. 

Mr.  ScHAEFER.  So  they  may  not  have  the  need.  But  can  I  go  to 
the  city  of  Denver — and  this  is  where  our  major  population  of  indi- 
gents is — and  hopefully  copy  something  of  what  you  did? 

Mr.  McNamara.  We  would  love  to  have  you  do  it. 

The  other  thing  that  is  fascinating  about  this  program,  and  I 
point  to  people  in  my  staff  who  have  been  developing  this,  is  if  we 
want  to  do  this  for  so-called  underemployed,  the  working  poor,  we 
believe  that  we  can  take  this  same  program.  And  we  realize  that 
the  first  step  is  to  go  to  the  providers  and  get  them  to  agree  to 
reduce  their  costs. 

But  we  believe  that  with  a  one-third  contribution  from  the  em- 
ployer, a  one-third  contribution  from  the  Federal  Government  or 
the  State  government  or  local  government  and  a  one-third  contri- 
bution maybe  from  some  source  of  taxation,  that  we  could  provide 
this  same  kind  of  service  for  a  large  group  of  people  out  there 
today  that  have  no  health  care. 

We  believe,  for  instance,  that  for  just  a  few  dollars  a  month  the 
people  working  for  Little  Caesers  could  have  health  care,  and  this 
would  be  an  incentive  to  stay  rather  than  if  they  develop  an  illness 
or  become  pregnant  to  actually  quit  their  jobs  to  become  an  indi- 
gent so  they  can  receive  health  care  through  this  program. 

Mr.  ScHAEFER.  Is  this  the  first  time  this  has  been  done? 

Mr.  McNamara.  To  my  knowledge,  yes. 


Mr.  ScHAEFER.  Of  course,  we  haven't  thought  about  the  Chicago, 
Illinois  area  or  any  other  large  area,  Washington,  D.C.  area,  et 

Mr.  McNamara.  We  did  it  because  of  crisis. 
Mr.  ScHAEFER.  It  is  amazing  what  we  can  do  when  we  are  pushed 
to  the  wall. 

Mr.  McNamara.  We  had  $135  million  deficit.  We  had  absolutely 
no  way  of  resolving  that  deficit.  We  were  running  $50,000  a  day 
over  budget  just  for  health  care  costs  when  we  took  this  program  to 
the  State.  The  bureaucrats  in  the  State  level,  probably,  had  there 
not  been  a  crisis,  would  not  have  supported  us.  They  had  the  alter- 
native of  accepting  this  program  or  taking  over  the  county  of 
Wayne  and  running  it,  and  they  weren't  doing  that  great  a  job 
with  the  State  of  Michigan,  so  it  was  very  doubtful  they  would  im- 
prove on  how  the  State  ran. 

It  was  a  crisis  and  ending  up  with  the  county  of  Wayne  giving  us 
the  right  to  create  county  care.  They  gave  us  that  right  and  it  has 
been  extremely  careful. 

Mr.  ScHAEFER.  I  hope  once  this  has  all  been  taken  care  of,  and 
your  waiver  comes  through,  you  will  share  your  information  with 
other  people  in  other  areas. 

Mr.  McNamara.  Be  happy  to. 

Mr.  ScHAEFER.  We  have  been  discussing  all  morning  the  hard 
times  that  hit  Michigan  in  the  1980's,  and  certainly  have  come 
along  since  then,  and  Governor  Milliken  and  Blanchard  endorsed 
and  funded  the  emergency  programs  to  provide  the  food  and  shel- 
ter to  the  needy.  They  also  acknowledged  the  serious  public  threat 
to  the  people  who  must  go  without  food,  shelter,  and  the  tendency 
of  people  without  insurance  to  delay  getting  health  care  until  they 
get  really  ill,  dangerously  ill. 

Vern  Smith  testified  people  of  all  ages  without  health  insurance 
do,  in  fact,  go  without  the  health  care.  It  is  understandable,  even 
with  the  small  children  getting  vaccinated  for  the  various  problems 
that  we  have. 

Do  you  believe  emergency  programs  since  the  one  originally  en- 
visioned by  Governors  Milliken  and  Blanchard  are  needed  now  to 
prevent  costly  and  unnecessary  illness  while  we  decide  what  we  are 
going  to  do  nationally? 

Mr.  McNamara.  I  think  at  present,  most  people  who  have  a  need 
for  health  care,  there  is  a  way.  Those  that  are  outside  of  our  pro- 
gram that  are  outside  of  regular  health  care  programs  end  up  in 
the  cost  of  the  automobile  that  gets  delivered  because  of  the  unique 
arrangement  that  Blue  Cross,  which  is  a  major  health  provider, 
has  in  setting  up  their  charges.  That  is  unfortunate. 

I  think  that  it  is  one  of  the  reasons  why  we  aren't  competitive  in 
the  automobile  business,  is  because  health  care  charges  are  so  out- 
rageously large  and  the  indigent,  the  individual  that  can't  be  cared 
for,  is  taken  to  a  hospital;  the  hospital  runs  up  the  cost. 

The  hospital  sends  the  cost  to  Blue  Cross,  and  Blue  Cross  in  turn 
shares  it  with  the  county  of  Wayne  and  Ford  Motor  Company  and 
Chrysler,  and  all  those  other  people.  In  the  absence  of  this  kind  of 
emergency  plan  that  you  have  to  make  these  dollars  available,  in 
most  instances  these  people  are  being  cared  for,  but  they  are  being 


unfairly  cared  for.  There  is  an  unfair  cost  being  shifted  to  the  in- 
dustry of  this  area. 

Mr.  ScHAEFER.  We  had  the  UAW  and  Chrysler  in  today,  and  that 
was  basically  a  message  that  came  out.  So  I  don't  have  another  one 
right  at  this  moment. 

Mr.  McNamara.  May  I  introduce  Deborah  Scott,  who  runs  this 
program,  and  has  been  doing  a  tremendous  job.  She  does  the  work, 
and  I  am  taking  credit  for  it. 

Mr.  ScHAEFER.  Mr.  Chairman,  I  yield  back. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman.  The  Chair  recog- 
nizes the  gentleman  from  Michigan,  Mr.  Upton. 

Mr.  Upton.  Thank  you,  Mr.  Chairman,  and  thank  you,  Mr. 
McNamara,  for  bringing  this  to  our  attention.  It  certainly  sounds 
like  it  works  and  it  works  well.  Both  of  you  are  to  be  commended 
for  the  leadership  you  provided,  certainly  to  this  side  of  the  State. 

I  have  a  couple  of  questions.  How  many  providers  do  you  know 
that  actually  participate  in  the  program?  Do  all  of  them  partici- 

Mr.  McNamara.  We  took  bids  and  selected  four.  We  have  the 
program  basically  split  up,  roughly  10  to  12,000  indigents  in  each 
one  of  these — with  each  one  of  these  providers.  They  all  agreed  to 
the  same  $77  per  month. 

Mr.  Upton.  But  in  terms  of  the  hospitals  or  physicians  that 
might  participate  in  the  program-  

Mr.  McNamara.  Deborah  tells  me  we  have  190  subcontractors, 
but  four  basic  providers. 

Mr.  Upton.  You  indicated  in  an  earlier  question  that  Pennsylva- 
nia apparently  has  a  waiver  from  HCFA? 

Mr.  McNamara.  It  is  my  understanding  they  do. 

Mr.  Upton.  Do  you  know  the  history,  why  they  have  one  and 
why  you  have  not  been  heard? 

Mr.  McNamara.  No.  I  know  we  have  run  this  program  in  the 
past  with  State  dollars  and  county  dollars.  The  State  has  said  they 
no  longer  can  afford  it.  Someone  came  up  with  the  ingenius  plan  of 
leveraging  the  county  dollars  with  Federal  dollars  to  fund  the  pro- 

In  the  course  of  this,  we  were  told  Pennsylvania  has  been  doing 
it  for  years,  we  ought  to  be  able  to  do  it,  too.  So  I  don't  know  if  that 
answers  your  question.  Can  you  add  anything  to  that.  Deb? 

Ms.  Scott.  No. 

Mr.  Upton.  How  long  has  your  request  been  pending? 

Mr.  McNamara.  I  would  say  not  more  than  30  days.  Up  until 
New  Year's,  we  weren't  sure  the  State  was  going  to  fund  this  pro- 
gram. We  were  in  the  process  of  making  plans  to  close  it  down.  We 
had  absolutely  no  way  of  funding  the  health  needs  of  these  43,000 
people  until  someone  discovered  the  Federal  leveraging  aspect  of  it. 

Mr.  Upton.  I  appreciate  your  testimony.  Thank  you  for  sharing 
that  with  the  committee. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman.  The  gentleman 
from  Michigan,  Mr.  Conyers. 

Mr.  Conyers.  Thank  you,  Mr.  Chairman.  I  am  always  delighted 
to  see  and  hear  from  Ed  McNamara,  and  I  congratulate  you  on  this 
program.  You  cited  bipartisan  support  that  has  helped  you  along 


the  way  and  out  of  the  hole.  Is  the  Attorney  General  of  the  State  of 
Michigan  included  in  that  bipartisan  support  package? 

Mr.  McNamara.  Yeah,  I  think  so.  Frank  is — hasn't  given  us  

Mr.  CoNYERS.  A  good  friend  of  ours,  but  I  have  not  heard  any- 
body use  the  Michigan  Constitution  as  a  basis  for  drawing  a  legal 
conclusion  in  many  years,  many  years. 

Mr.  McNamara.  He  really  hasn't  been  involved. 

Mr.  CoNYERS.  Well,  he  found  it  unconstitutional. 

Mr.  McNamara.  Well,  I  think  we  have  worked  around  that, 

Mr.  Conyers.  Not  to  worry? 
Mr.  McNamara.  Not  to  worry. 

Mr.  Conyers.  Well,  I  am  glad  to  hear  it.  If  you  are  not  worried,  I 
am  sure  not  worried.  When  I  read  about  an  Attorney  General  find- 
ing a  method  that  found  State  legislation  unconstitutional,  I  am 
worried  until  I  hear  from  the  Chief  Executive. 

Mr.  McNamara.  We  asked  Mike  Dugan  for  

Mr.  Conyers.  Bernard  Kilpatrick,  out  in  the  audience,  just  as- 
sured me  to  relax,  I  don't  have  to  pursue  this  line  of  questioning. 

Mr.  McNamara.  Mike  Dugan's  opinion  overrode  the  Attorney 

Mr.  Conyers.  Do  these  things  happen  in  local  government? 
Mr.  McNamara.  Oh,  yeah. 

Mr.  Conyers.  It  has  happened  before.  Now,  this  all  goes  together. 
You  know,  we  have  got  to  worry  about  the  larger  picture.  We  have 
got  the  national  picture  as  well  as  our  State  and  our  city.  At  $77  a 
month,  what  about  the  heart  by-pass  case  or  the  person  that  costs 
$78  a  month  or  the  person  that  costs  $7,700  a  month,  because  that 
fits  in,  Mr.  Executive,  to  a  larger  question. 

You  serve,  and  admirably  so,  43,000  people  in  the  county  through 
this  wonderful  program.  Three  hundred  thousand  people  in  De- 
troit, part  of  your  county,  don't  have  a  dime's  worth  of  health  in- 
surance. Probably  100,000  more  are  seriously  underinsured  and 
won't  know  it  until  the  wrong  health  problem  meets  the  doctor  or 
the  hospital  that  they  go  to. 

So  I  need  you  to  expand  with  us  the  nature  of  the  problem,  be- 
cause you  can't  mean  that  most  people  are  being  cared  for,  because 
the  only  thing  you  can  get  without  health  insurance  in  America — 
this  has  nothing  to  do  with  Detroit  or  Wayne  County — is  that  you 
maybe  can  get  some  emergency  care  if  you  are  lucky;  that  is,  you 
can  go  to  the  emergency  room  at  Ford  and  they  will  give  you  some 
pills  or  something,  but  that  doesn't  have  anything  to  do  with  treat- 

We  are  working  on  a  serious  problem  that  we  have  been  in  since 
1935,  when  Franklin  Delano  Roosevelt  darn  near  put  national 
health  insurance  in  the  Social  Security  Act  of  that  year.  So  I  need 
you  to  give  us  this  broader  picture  for  which  I  know  you  are  good 

Mr.  McNamara.  One  of  the  things  this  program  initially  had, 
and  still  does  have,  is  about  $5  million  that  can  be  drawn  on  hospi- 
tals to  do  things  for  those  300,000  you  are  referring  to.  What  I 
think  this  program  has  done  for  us  is  to  prove  that  it  is  a  workable 
program  that  will  make  sense,  and  that  for  $70  to  $85  a  month,  we 
could  take  care  of  those  people  also  by  getting  the  providers  to 


extend  the  same  kind  of  service  to  those  other  300,000,  if  that  is 
the  number. 

What  we  are  trying  to  do  now  is  meet  with  these  health  care  pro- 
I  viders  to  work  out  a  plan  where  they — where  they  will  cooperate  to 
J  provide  this  service.  We  would  then  hope  to  start  picking  off  em- 
ployers who  presently  don't  furnish  health  care  insurance  or 
i  health  care  of  any  sort,  and  involve  them  in  the  program. 
I  We  think  if  this  was  mandatory — for  instance,  if  the  State  Legis- 
I  lature  would  make  it  mandatory  that  all  employers  in  the  County 
!  of  Wayne  had  to  participate  in  a  cooperative  health  care  plan,  that 
we  could  actually  save  those  health  care — or  those  employers 
money  with  this  plan. 

Mr.  DiNGELL.  I  am  trying  to  understand.  The  bounds  of  county 
care  geographically  are  outside  the  city  of  Detroit.  In  other  words, 
persons  within  the  city  of  Detroit  are  not  covered  under  this  plan? 

Mr.  McNamara.  Oh,  yes.  All  43  communities,  including  Detroit, 
and  the  major  portion  of  our  43,000  come  from  the  city  of  Detroit. 
Mr.  DiNGELL.  Thank  you. 
Mr.  McNamara.  Probably  80  percent  of  them. 
Mr.  CoNYERS.  Well,  in  other  words,  you  are  advocating  a  local 
national  health  insurance  plan. 
Mr.  McNamara.  Absolutely,  absolutely.  We  think  it  will  work. 
Mr.  CoNYERS.  I  think  it  will,  too,  on  the  national  level,  as  well. 
Mr.  McNamara.  What  we  would  love  to  do.  Congressman,  is 
I    prove  in  Wayne  County  it  can  work,  but  we  need  some  legislation 
i    and  we  need  some  sources — for  instance,  if  we  could  get  a  nickel  on 
;    a  pack  of  cigarettes  in  Wayne  County  in  the  State  of  Michigan, 
that  would  be  the  government's  contribution. 

Then  we  have  the  State's  contribution,  and  we  have  the  employ- 
er's contribution.  You  put  those  three  together,  you  can  give  as 
good  health  care  as  those  43,000  people  are  getting  today,  and  we 
get  very,  very  few  letters  from  those  43,000  complaining  about 
health  care,  because  there  is  an  incentive  for  that  health  care  pro- 
vider to  take  care  of  that  person.  It  pays  them  to  go  out  and  look 
for  them  and  find  them  and  say,  hey,  you  have  high  blood  pressure; 
we  will  give  you  a  prescription  to  take  care  of  it.  They  don't  want 
them  coming  back  as  a  stroke  victim  because  they  only  get  $77  a 
month,  regardless. 

Mr.  CoNYERS.  What  part  of  your  43,000  are  indigent,  what  part 
are  Medicaid,  what  part  are  Medicare,  what  part  are  private  insur- 

Ms.  Scott.  All  of  the  county  care  recipients  are  indigent  patients 
j    between  the  age  of  21  through  64.  Medicaid  is  a  different  program. 
!    This  is  one  category,  medical  indigents  in  Wayne  County. 
I       Mr.  CoNYERS.  No  Medicaid,  no  Medicare,  no  private. 

Ms.  Scott.  Absolutely. 

Mr.  CoNYERS.  You  are  dealing  with  the  most  medically  under- 
served  population  in  the  city,  the  county,  or  the  State. 
Mr.  McNamara.  Correct. 

Mr.  CoNYERS.  Now,  this  becomes  a  program  that  needs  to  be  ex- 
tolled. If  you  can  provide  them  adequate  care  for  $77  a  month,  I 
need  to  be  paying  you  a  visit  very,  very  shortly.  But  I  thank  you, 
Mr.  Chairman. 


Mr.  DiNGELL.  The  Chair  thanks  the  gentleman.  Mr.  McNamara, 
we  have  talked  briefly  about  your  waiver  at  HHS.  You  told  my  col- 
leagues that  it  was  filed  about  30  days  ago? 

Mr.  McNamara.  I  would  estimate  30  days.  It  may  be  less  than 
that,  Congressman.  I  have  a  meeting  with  the  State  Treasurer  on 
Tuesday  to  discuss  some  of  the  problems,  apparently,  that  this  has 
run  into.  I  really  can't  comment  on  it.  I  don't  have  any  detail, 
other  than  to  know  it  does  involve  a  waiver  that  we  have  never 
asked  for  before. 

Mr.  DiNGELL.  You  and  I  have  a  very  long  and  happy  history  of 
working  together  on  problems.  I  think  the  committee  would  like  to 
interest  itself  in  your  waiver  and  encourage  a  pattern  of  right 
thinking  at  HHS.  Can  you  give  us  a  little  appreciation  of  what 
would  happen  if  you  don't  get  the  waiver? 

Mr.  McNamara.  The  County  of  Wayne  puts  about  $15  million,  I 
believe,  into  this  program.  That  is  what  we  put  in  last  year,  and 
that  is  what  we  plan  to  put  in  this  year.  Even  with  that,  we  were 
creating  a  reserve  in  case  those  43  became  48,000,  we  didn't  feel  a 
need  we  had  to  go  back  to  the  State  or  increase  our  contribution. 

In  the  event  this  falls  apart,  this  program  would  have  to  be 
phased  out.  The  County  of  Wayne — ^we  say  we  balanced  a  $180  mil- 
lion budget;  we  balanced  it  with  $120,000  in  the  black  at  the  end  of 
the  year,  so  we  really  don't  have  any  bucks  to  put  into  this  pro- 

In  the  event  the  waiver  dies,  the  whole  program  will  die.  It  will 
be  dismantled.  As  we  told  the  Governor  and  the  Legislature,  we 
will  be  talking  about  body  counts  shortly  after  that. 

Mr.  DiNGELL.  How  much  longer  can  they  continue  to  support  this 

Mr.  McNamara.  30  days. 

Mr.  DiNGELL.  Do  you  have  any  problems  in  connection  with  this 
on  the  part  of  the  suppliers,  with  possible  liability  for  malpractice, 
or  anything  of  that  kind? 

Mr.  McNamara.  Us? 

Mr.  DiNGELL.  Is  there  a  potential  for  a  malpractice  problem? 

Mr.  McNamara.  We  have  not  had  that  problem.  Of  course,  we 
have  a  provider  that  stands  between  us  and  the  patient. 

Mr.  DiNGELL.  I  am  aware  of  that,  but  does  the  provider  have  any 
problems  you  are  aware  of? 

Mr.  McNamara.  To  our  knowledge,  none.  We  have  other  provid- 
ers that  would  like  to  get  into  the  plan. 

Mr.  DiNGELL.  The  Chair  recognizes  the  good  friend  from  Colora- 

Mr.  ScHAEFER.  What  about  AIDS  patients?  Do  you  handle  those? 

Ms.  Scott.  AIDS  patients  are  eligible  for  county  care  until  a 
point  in  time  in  their  illness  when  they  are  deemed  disabled  by  the 
State  of  Michigan.  At  that  point,  there  is  a  process  to  transfer 
them  to  the  Medicaid  disability  program.  We  take  care  of  them  as 
soon  as  they  are  HIV-positive  and  for  some  part,  sometimes  more 
than  we  feel  we  need  to  take  care  of  them  during  the  disease  proc- 
ess itself.  Once  they  are  disabled,  unable  to  work  or  will  be  dead  in 
a  year  or  less,  they  are  to  be  transferred  to  the  Medicaid  disability 

Mr.  ScHAEFER.  Where  would  that  be?  Transferred  


Ms.  Scott.  It  is  a  process  that  occurs — the  hospital  helps  fill  out 
an  application  or  the  patient  can  go  to  the  Department  of  Social 
Services  and  the  paperwork  is  completed  by  the  workers,  doctors, 
physicians  caring  for  the  patient.  It  is  sent  to  the  State,  the  State 
evaluates  it  and  determines  whether  or  not  that  patient  is  eligible 
for  Medicaid  due  to  their  disability. 

Mr.  ScHAEFER.  This  has  been  worked  out  with  your  providers,  as 
far  as  having  no  problems  with  AIDS  patients. 

Ms.  Scott.  This  is  a  standard  process  that  existed  before  county 
care.  This  is  something  we  have  educated  the  provider  network  re- 
garding how  to  do  this  and  how  to  do  it  the  quickest  way  possible. 
It  is  a  process  we  would  like  to  improve,  in  some  cases,  but  for  the 
most  part,  that  is  how  it  happens. 

Mr.  ScHAEFER.  One  other  question.  You  testified,  Mr.  McNamara, 
the  larger  portion  of  indigents  are  in  Wayne  County,  when  you 
look  at  the  whole  State.  What  about — and  I  kind  of  asked  the  ques- 
tion, but  Mr.  Conyers  hit  it. 

OK,  we  have  a  national  health  care  plan,  but  it  is  really  within 
the  county.  Would  you  adopt  this  same  thing  in  some  of  the 
other — Lansing  or  Ann  Arbor  or  where  some  of  the  other  gentle- 
men are,  even  though  they  have  a  smaller  portion? 

Mr.  McNamara.  I  think  it  would  work  as  well.  Again,  I  think  if 
you  take  some  of  the  counties  in  Michigan,  Schoolcraft  County 
might  have  two  indigents;  Washtenaw,  an  indigent  is  a  kid  that 
only  has  two  bicycles. 

Mr.  Schaefer.  I  understand.  We  are  not  talking  about  the  four 
or  five.  You  said — how  many  percent  was  in  Wayne  County? 

Mr.  McNamara.  I  would  say  probably  50  percent. 

Mr.  Schaefer.  You  are  taking  that  other — I  don't  know  what  is 
in  Lansing  or  Ann  Arbor. 

Mr.  McNamara.  Saginaw,  some  of  the  counties — Flint  would 
have  some  where  this  program  would  work  well.  Perhaps  Grand 
Rapids,  Congressman  can't. 

Ms.  Scott.  It  is  proposed  in  the  new  legislation  that  any  county 
choosing  to  set  up  a  model  such  as  what  we  have  done  in  Wayne 
County  has  that  opportunity.  Genesee  County  has  expressed  an  in- 
terest, and  we  are  currently  educating  some  of  the  administration 
there  as  to  how  they  could  do  it. 

Being  a  managed  care  program,  it  is  important  that  you  have  at 
least  10,000  recipients.  Mr.  Conyers  asked  about  the  $77,  how  does 
that  work?  Some  people  never  show  up  and  the  provider  still  gets 
that  $77.  Some  people  show  up  and  will  utilize  maybe  $10,000. 
They  take  theirs  and  a  whole  lot  of  other  people's  $77. 

The  concept  is,  there  have  to  be  enough  people  nationwide,  and 
according  to  the  professional,  it  needs  to  be  at  least  10,000  people 
for  that  to  work.  We  do  consider  ourselves  a  model.  We  can  be  du- 
plicated in  the  State,  in  other  counties  or  as  a  national  model,  of 
course  with  adjustments  that  need  to  be  made  according  to  the 
locale  and  the  different  needs  in  that  area. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman.  Mr.  McNamara, 
it  has  been  a  privilege  having  you  here  before  us.  Good  to  see  you 
again  as  a  personal  friend.  We  are  always  delighted  to  see  an  old 
friend  like  yourself  today. 

Mr.  Conyers.  We  won't  ask  about  the  baseball  stadium. 


Mr.  DiNGELL.  Ms.  Scott,  we  thank  you  for  your  assistance  here, 
too.  You  are  doing  remarkable  work. 

Mr.  DiNGELL.  The  Chair  announces,  to  the  vast  surprise  of  all  in- 
cluding the  Chair,  we  are  proceeding  on  schedule.  The  Chair  an- 
nounces that  our  next  panel  is  a  panel  composed  of  Ms.  Susan 
McParland,  staff  attorney,  Michigan  Legal  Services;  Dr.  David  Ada- 
many,  president,  Wayne  State  University;  Mr.  James  Foster,  ad- 
ministrator. Three  Rivers  Area  Hospital,  St.  Joseph  County. 

Ladies  and  gentlemen,  we  are  deeply  appreciative  of  your  being 
with  us,  and  thank  you  for  your  assistance.  To  you.  Dr.  Adamany, 
we  want  to  express  our  particular  thanks  for  your  hospitality  today 
and  making  available  to  us  the  services  of  the  university.  You  and 
your  staff  have  been  of  extraordinary  assistance  to  us,  and  we 
thank  you. 

We  will  start  with  Ms.  McParland.  We  thank  you  for  being  with 


Ms.  McParland.  Thank  you  very  much.  Chairman  Dingell,  for 
this  opportunity.  I  am  Susan  McParland.  I  am  staff  attorney  at 
Michigan  Legal  Services  here  in  the  city  of  Detroit.  I  wanted  to 
thank  the  committee  for  the  opportunity  to  testify  and  to  submit  a 
written  statement  on  issues  of  such  enormous  importance  to  the 
poor  and  disabled  citizens  in  Michigan. 

Our  office,  I  would  like  to  say,  is  uniquely  suited  to  discuss  the 
details  of  the  budget  cuts  in  human  assistance  programs  in  Michi- 
gan and  to  relate  the  consequences  of  those  cuts  for  hundreds  of 
thousands  of  residents.  Our  role  is  lead  counsel  in  virtually  every 
lawsuit  filed  in  1991  and  now  in  1992,  challenging  the  reductions  in 
the  budget  for  Michigan  Department  of  Social  Services,  gives  us  a 
singular  perspective,  and  as  counsel  for  plaintiffs  in  plaintiff  class- 
es, we  have,  of  course,  very  detailed  knowledge  concerning  the  ef- 
fects of  these  cutbacks  on  those  individuals. 

The  theme  of  my  testimony  is  that  the  health  care  needs  of 
Michigan's  impoverished,  disabled,  elderly  and  young  are  not  being 
met  in  the  present  circumstances  in  which  benefits,  emergency  as- 
sistance, and  State  medical  care  reductions  result  in  deprivation  of 
basic  needs,  including  important  health  care  needs. 

Contrary  to  some  of  the  prior  speakers,  I  would  like  to  point  out 
that  the  health  care  needs  around  this  State  are  not  being  met,  not 
only  because  the  basic  health  care  programs  are  not  providing 
those  services,  but  also  because  you  cannot  view  health  care  in  iso- 
lation. The  inevitable  consequences  of  long-term  deprivation  of  this 
nature  and  degree  poses  a  threat  to  the  public  health  and  welfare 
when  the  enormity  of  the  reductions  and  their  effect  on  low-income 
people  is  weighed  and  the  full  implications  considered. 

A  compelling  basis  exists  for  stating  that  a  human  emergency 
exists  in  this  State.  Contrary  to  myth,  the  emergency  is  not  limited 


by  geography,  age,  race,  or  gender.  And  in  a  recessionary  time,  the 
wisdom  of  drastically  cutting  back  on  human  services  is  highly 

Moreover,  the  established  health  care  systems,  like  Medicaid, 
cannot  possibly  address  the  crisis  in  physical  and  mental  health  ef- 
fectively when  thousands  of  Michigan  citizens  are  facing  homeless- 
ness  and  destitution.  More  specifically,  hundreds  of  elderly  disabled 
are  being  forced  to  stretch  their  prescription  medication  because 
the  State  medical  care  programs  fail  to  provide  adequate  payment 
for  those  medications. 

Executive  McNamara  discussed  the  highlights  and  good  points  of 
the  Wayne  County  care  system,  and  I  would  just  like  to  add,  al- 
though that  is  a  very  laudable  program,  that  is  limited  to  Wayne 
County.  All  throughout  the  rest  of  Michigan,  indigents  who  are  not 
receiving  cash  assistance  are  receiving  very,  very  limited  medical 

Far  from  being  anecdotal,  the  scores  of  declarations  which  we 
have  collected  throughout  our  lawsuits,  many  of  which  I  have  in- 
cluded in  attachments  to  our  written  statement,  which  depict  the 
horrors  experienced  by  the  poor  and  disabled  during  the  last  year, 
these  are  representative,  not  anecdotes,  and  they  represent  the 
crises  and  abuses  being  heaped  on  the  most  vulnerable  in  this 
State.  These  stories  are  a  vivid  and  accurate  illustration  of  the 
ways  in  which  the  policy  changes  in  cutbacks  are  affecting  Michi- 
gan's poor,  and  sadly,  they  are  not  anomalous. 

My  written  statement  includes  a  great  deal  of  detail  describing 
the  reductions  in  welfare  programs,  policy  changes  and  descrip- 
tions of  the  litigation  and  policy  advocacy  our  officers  and  others 
have  undertaken  in  the  past  year  to  ameliorate  the  harm.  Here,  I 
would  like  to  describe  the  current  affairs  in  terms  of  the  assistance 
programs  in  Michigan  and  how  they  are  affecting — those  cuts  are 
affecting  some  specific  individuals. 

Yesterday,  February  27,  our  office  filed  a  lawsuit — another  law- 
suit against  the  State  on  behalf  of  several  classes  of  individuals, 
challenging  the  restrictions  and  procedural  barriers  in  three  very 
critical  State-funded  programs  in  Michigan;  those  include  the  State 
Disability  Assistance  Program,  the  Emergency  Assistance  Program, 
and  Indigent  Medical  Care. 

The  State  Disability  Assistance  Program,  which  was  created  in 
October  of  1991  to  provide  continuing  care  for  disabled  people,  is 
serving  only  7,500  people  in  this  State  at  present,  whereas  as  many 
as  40,000  or  50,000  are  potentially  eligible,  but  because  of  procedur- 
al barriers,  and  a  rigid  definition  of  disability,  those  people  are  not 
receiving  cash  assistance. 

Many  people  here,  especially  from  Michigan,  are  probably  famil- 
iar with  the  story  of  the  woman  who  was  featured  in  a  Free  Press 
editorial  a  couple  of  weeks  ago,  who  was  turned  down  for  the  SBA 
program  and  told  that  her  blood  pressure  was  quote  ''not  high 
enough  to  qualify."  Two  weeks  later,  she  suffered  a  stroke  and  was 
hospitalized.  Following  being  featured  in  the  Free  Press  editorial 
and  named  in  our  lawsuit,  she  was  finally  qualified  as  eligible  for 
SBA  benefits. 

Similarly,  Ms.  Victoria  Goad,  whose  affidavit  is  also  included  in 
the  attachments,  is  a  61-year-old  woman  who  suffers  from  hyper- 


tension,  diabetes,  uterine  tumors  and  a  variety  of  other  ailments. 
She  has  waited  over  5  months  to  qualify  for  SDA.  During  that 
period,  she  has  been  without  any  assistance.  It  is  only  after  testify- 
ing in  the  Michigan  State  legislature  and  being  named  as  a  plain- 
tiff in  our  lawsuit  that  she  was  qualified  for  SDA  benefits. 

The  stories  go  on  and  on  in  the  Emergency  Assistance  Program, 
which  is  a  joint  Federal-State  program  designed  to  provide  assist- 
ance to  low-income  persons  facing  emergencies  ranging  from  delin- 
quent health  payments  to  utility  payments,  to  prevent  termination 
of  utility  services. 

The  State's  recent — and  by  recent,  I  mean  December  of  1991 — 
revisions  in  this  program  result  in  the  virtual  exclusion  of  every 
applicant,  and  benefits  so  low  that  the  emergency  they  are  facing 
cannot  possibly  be  addressed. 

I  would  like  to  give  the  committee  one  example,  the  case  of 
Robin  Esse,  whose  declaration  is  also  included  in  the  written  mate- 
rials. Ms.  Esse  is  35  years  old.  She  suffers  from  life-threatening  dia- 
betes and  very  severe  depression,  so  severe  she  has  been  hospital- 
ized numerous  times  for  suicide  attempts. 

She  receives  $425  per  month  in  side  benefits.  Despite  the  fact 
that  she  pays  a  modest  rent  amount  of  $200  per  month,  she  can  no 
longer  qualify  for  any  emergency  assistance  from  the  State  of 
Michigan  to  help  pay  a  delinquent  water  bill  because  her  rent  ex- 
ceeds $160  per  month,  which  is  the  maximum  allowable  rate  for  an 
individual  in  Michigan  to  qualify  for  emergency  assistance. 

That  policy  obviously  has  an  impact  on  her,  and  thousands  of 
other  people  whose  rent  obviously  exceeds  $160  per  month.  The 
changes  in  the  emergency  needs  program  which  I  have  included  in 
great  detail  in  the  written  statement  on  these  changes  virtually 
precludes  thousands  and  thousands  of  people  from  desperately 
needed  emergency  assistance. 

The  third  program,  the  indigent  medical  care  program,  is  a 
State-funded  program  that  previously  provided  indigent  medical 
care  to  general  assistance  recipients  in  this  State.  The  current 
structure  of  that  program  is  a  two-tiered  structure,  and  if  an  indi- 
gent person  is  not  receiving  a  cash  assistance  benefit,  that  is,  eligi- 
ble for  the  SDA  program  or  family  assistance,  they  are  only  eligi- 
ble for  a  very  limited  medical  care. 

So  in  the  case  of  two  of  our  named  plaintiffs  in  the  lawsuit  we 
filed  yesterday,  Vernon  and  Mary  Faircloth,  they  are  not  eligible 
for  SDA  despite  suffering  from  numerous  ailments.  They  have 
waited  for  6  or  7  months  to  have  their  application  turned  down, 
and  they  both  require  numerous  medications  each  month. 

They  have  to  pay  a  copayment  for  those  medications  under  this 
medical  care  system  of  $14  per  month,  out  of  zero  income.  They 
have  been  told  by  their  worker  that  they  ought  to  collect  pop  bot- 
tles to  raise  the  amount.  Every  month  since  October  they  have 
gone  to  local  charities  and  churches  to  raise  the  money.  So  far, 
they  have  been  successful  doing  that.  However,  obviously  that 
places  enormous  stress  on  them. 

Further,  the  case  of  Eva  Fredericks,  and  I  think  if  anything 
points  out  the  disparity  between  health  care  delivery,  this  case 
does,  and  this  also  illustrates  how  people  out  of  State  are  not  being 
served.  Their  medical  needs  are  not  being  served  and  not  being  ab- 


sorbed,  because  there  are  so  few  number  of  indigent  people  out  of 
State,  not  being  absorbed  by  the  mainstream  medical  system. 

I  am  sure  many  people  are  familiar  with  Ms.  Fredericks.  She  is 
the  woman  who  skipped  her  heart  medication  following  the  cuts  of 
October  1st  last  year,  because  she  knew  the  following  month  the 
State  would  not  be  paying  for  it.  She  suffered  a  stroke  as  a  result 
of  this,  and  died  several  weeks  later. 

These  are  the  sorts  of  horrors  that  are  resulting  directly,  not  in- 
directly, but  very  directly,  from  the  reductions  in  these  programs 
and  the  scope  of  services.  Although  litigation  and  advocacy  may  re- 
solve some  issues  in  these  programs  and  some  of  the  problems,  it  is 
clear  by  now  that  those  measures  cannot  ameliorate  the  wide- 
spread emergency  in  this  State. 

It  is  also  crystal  clear  that  private  agencies  and  charities,  con- 
trary to  the  assertion  of  the  administration  in  this  State,  cannot 
fill  the  gap.  In  the  short  term,  there  has  to  be  a  way  that  the  Fed- 
eral Government  can  address  delivery  of  emergency  relief  to  this 

Also,  I  have  discussed  the  issue  of  the  enforcement  of  the  Medi- 
care Catastrophic  Act  and  the  1988  rollback  provision  in  my 
papers.  It  is  clear  that  the  State  of  Michigan  is  benefiting  from 
very  large  sums  of  Federal  match  money  in  the  Medicaid  program. 
However,  I  think  it  is  inappropriate  for  the  State  to  come  to  this 
committee  with  a  wish  list  for  Medicaid  enhancements  when  they 
were  not  willing  to  pay  and  to  support  the  basic  human  services 
programs  in  this  State,  without  which  the  health  of  thousands  of 
people  in  this  State  is  undermined. 

Those  are  the  sorts  of  things  I  would  recommend,  and  I  thank 
you  for  the  opportunity  to  testify,  and  I  welcome  any  questions. 

[Testimony  resumes  on  p.  230.] 

[The  prepared  statement  and  attachments  of  Ms.  McParland 


Testimony  Submitted  By 
Susan  K.  McParland 
Staff  Attorney 
Michigan  Legal  Services 
Detroit,  Michigan 


Subcommittee  on  Oversight  and  Investigation 
of  the  Committee  on  Energy  and  Commerce 

February  28,  1992 

Michigan  Legal  Services  is  the  state  support  center  for  legal  services  in  Michigan.  Our 
office  addresses  issues  affecting  low-income  persons  on  a  statewide  basis  through  class-wide 
litigation,  policy  advocacy,  legislative  representation  and  assistance  to  local  or  neighborhood 
legal  services  programs.  We  believe  that  constant  communication  with  legal  services  advocates 
and  policy  makers  has  always  given  us  a  good  sense  of  problems  in  access  to  adequate  health 
care,  and  adequate  government  benefits  and  other  emergency  assistance  programs. 

Our  role  as  sole  or  lead  counsel  to  plaintiffs  and  plaintiff  classes  in  virtually  every  lawsuit 
filed  during  1991  and  1992  challenging  budget  cuts  in  essential  human  services  in  the  State  of 
Michigan  Department  of  Social  Services  makes  our  program  uniquely  suited  to  discuss  the 
details  of  the  reductions  in  assistance  programs,  the  impact  of  the  reductions  in  programs  already 
underway,  and  the  likely  impact  of  the  reductions  if  the  situation  continues  unabated. 

In  response  to  the  Sub-Committee's  invitation,  I  prepared  testimony  and  a  written 
statement  addressing  the  question  of  the  consequences  of  the  State  of  Michigan's  welfare  cuts 
on  the  ability  to  provide  health  care  through  established  programs,  such  as  Medicaid  and  impact 



of  the  reductions  on  the  public's  health  and  safety  resulting  from  the  lack  of  adequate  housing, 
utilities,  food,  and  other  essential  services.  It  is  in  the  context  of  the  latter  inquiry  that  the  full 
implications  for  public  health  and  welfare  and  the  threats  posed  to  the  physical  and  mental  well- 
being  of  hundreds  of  thousands  of  residents  is  clarified.  The  immediate  consequences  of  these 
reductions  presents  a  compelling  basis  for  stating  that  a  human  emergency  exists  in  the  State  of 
Michigan,  nevermind  the  inevitable  effects  of  long-term  deprivation  on  significant  numbers  of 
persons  many  of  whom  are  extremely  fragile,  physically  or  mentally  disabled,  or  very  old  or 
very  young. 

I  also  wish  to  pass  on  the  observation  that  the  policies  resulting  in  reductions  in  welfare 
benefits  and  emergency  assistance  in  Michigan  differ  from  other  recent  welfare  reforms  or 
cutbacks  in  this  state  or  in  the  federal  government.  There  is  a  mean-spiritedness  in  motivating 
these  policy  decisions  which  is  especially  shocking  in  a  state  like  Michigan  which  has  such  a  fine 
midwestem  tradition  of  providing  human  services  to  its  poor  and  temporarily  disadvantaged 

To  substantiate  these  allegations,  I  have  included  in  the  attachments  to  this  statement,  a 
number,  although  a  small  fraction  of  declarations  of  plaintiffs  and  or  class  members  in  various 
lawsuits  who  are  directly  affected  by  cuts  in  cash  assistance,  emergency  assistance  or  medical 
assistance  programs.  (Declarations  "A"). 

Responses  to  many  of  the  very  specific  questions  raised  by  the  committee  concerning 
aspects  of  Michigan's  Medicaid  state  plan  are  included  also  in  this  written  statement. 

The  theme  of  my  testimony  is  that  health  care  needs  cannot  be  met  under  the 
circumstances  in  existence  in  this  State  where  essential  services  are  not  being  provided  to 


hundreds  of  thousands  of  the  State's  poorest  and  most  vulnerable  residents. 

Assistance  programs  were  established  and  exist  to  address  the  needs  of  low-income  or 
impoverished  individuals  and  families  whenever  they  arise.  Secondly,  welfare  programs  serve 
a  related  function  by  expanding  to  prevent  disaster  to  individuals  and  families  when  an  economic 
downturn  reduces  employment.  Historically,  the  welfare  rolls  rise  as  unemployment  increases 
suggesting  that  human  services  should  be  increased  not  decreased  in  a  recessionary  economy. 
The  fact  that  Michigan's  administration  chose  to  drastically  reduce  basic  and  emergency 
assistance  programs  during  an  economic  downturn  greatly  exacerbates  the  dilemma  faced  by 
poor  persons,  the  elderly,  and  persons  with  disabilities  and  the  unemployed  in  this  State. 


In  January,  1991,  the  Depanment  of  Social  Services  began  developing  its  proposed 
cutback  plans  in  response  to  the  Legislature's  recent  enactment  of  a  supplemental  appropriation 
which  provided  in  part  for  9.2%  annualized  reduction  in  spending.  1990  PA  357.  Although 
it  was  clear  by  the  fall  of  1990  that  the  State  of  Michigan  had  a  large  budget  deficit,  the  newly 
elected  Governor's  response  to  the  deficit  included  plans  which  reduced  DSS'  budget 
disproportionately  and  resulted  in  permanent  restructuring  of  the  eligibility  criteria  for  benefit 
programs,  covered  services  and  the  elimination  of  many  programs  and  services. 

The  Director  of  DSS'  initial  plan  for  cutbacks  was  rejected  by  the  House  Appropriations 
Committee  triggering  the  so-called  automatic  line  item  reductions  provision  in  PA  357. 
Contrary  to  assertions  that  DSS'  plans  for  implementation  of  the  reductions  were  even-handed. 


the  plans  finally  put  in  place  reduced  benefits  and  services  disproportionately  and  eliminated 
some  services  altogether.  A  few  examples  follow: 

•  Elimination  of  the  Licensing  and  Regulation  Division  with 
responsibility  for  regulating  and  licensing  day  care  centers  and  in- 
home  child  care  arrangements;  and  sole  responsibility  for 
investigating  allegations  of  child  abuse  and  neglect  occurring  at 
child  care  centers.  (Restored  after  litigation  was  filed). 

•  Rateable  reductions  of  17%  in  AFDC  and  General  Assistance 
payments,  and  approximately  40%  in  SSI  state  supplements. 

•  Complete  elimination  of  Chore  Services  for  the  adult  Home 
Help  unit  for  the  elderly  and  disabled. 

•  Restriction  of  durable  medical  equipment  including  wheelchairs 
and  prosthetic  devices  to  individuals  who  need  the  equipment  to 
prevent  death  or  immediate  institutionalization. 

•  Reduction  in  contract  funds  to  emergency  food  providers  and 
emergency  shelter  providers. 

•  Reductions  in  several  emergency  needs  benefits  and  complete 
elimination  of  payment  for  delinquent  water  and  sewerage  bills. 

•  A  ratable  reduction  of  13.4%  in  benefits  to  participants  in  Job 
Start  reducing  their  benefits  from  $253  per  month  to  $219. 

In  February,  1991,  MLS  along  with  the  United  Auto  Workers  (UAW),  Michigan 
Association  for  the  Educations  of  Young  Children  (MAEYC),  Westside  Mothers,  Capuchin  Soup 
Kitchen  and  Michigan  Fair  Budget  Coalition,  filed  suit  challenging  the  constitutionality  of  the 
statutory  provision  which  mandates  the  reductions  and  the  proposals  developed  by  DSS 
implementing  the  cuts.  Plaintiffs  alleged  that  the  provisions  and  actions  taken  by  DSS  to 
implement  the  provisions  constituted  an  unlawful  delegation  of  legislative  authority  to  the 
executive  departments  to  develop  plans  to  implement  the  cuts.  Plaintiffs  alleged  Defendants' 


proposals  violated  various  federal  and  other  state  laws.  Michigan  Education  Association  for  the 
Education  of  Young  Children,  et  al.  v  State  of  Michigan,  et  al.  Wayne  County  Circuit  Court, 
No.  91-104221-CL. 

The  harm  showed  by  the  plaintiffs  at  trial  included  the  following: 

•  32,000    households    lost    vendor    shelter    on  3/1/91 
because  not  enough  left  in  their  grants  after  17% 

cuts.  With  an  average  household  size  of  three  for 
AFDC  households,  translates  to  90,000  persons 
losing  all  income.  In  addition,  many  others  who 
were  not  vendoring,  did  not  receive  enough  to  pay 
for  shelter  after  cuts, they  too  would  lose  housing. 
Locating  replacement  housing  would  be  very 
difficult  since  most  landlords  who  rent  to  low 
income  families  were  already  charging  the 
maximum  that  DSS  would  pay. 

•  In  addition  to  shelter  vendor  terminations,  6000  utility  vendor 
termsinations.  Utility  vendoring  gives  shut-off  protection.  So 
6,000  were  losing  shut-off  protection. 

•  Loss  of  discretionary  income  -  no  money  to  pay  for  doctor 
travel,  etc. 

•  For  every  ten  dollar  ($10)  increase  in  cash  benefits,  there  is  a 
$3  increase  in  FS  benefits.  Thus  a  reduction  in  ability  to  purchase 

•  Psychological  harm  to  thousands  who  would  be  living  in  fear 
of  becoming  homeless  and  destitute. 

During  the  preliminary  injunction  hearing  in  the  Wayne  County  Circuit  Court,  plaintiffs 
presented  enormously  detailed  in-court  testimony,  affidavits,  and  documents  from  clients, 
emergency  providers  and  experts  demonstrating  the  probable  consequences  of  the  cuts  as  listed 

The  Wayne  Circuit  Court  Judge  issued  a  decision  denying  Plaintiffs  Motion  for 



Preliminary  Injunction  on  March  28,  1991  ~  some  of  those  claims  are  on  appeal,  however, 
many  of  the  Separation  of  Powers  claims  were  resolved  favorably  in  later  litigation  between  the 
Speaker  of  the  House  and  Governor  Engler.  See  infra.  ^ 


In  late  April  of  1991,  a  lawsuit  was  filed  on  behalf  of  a  class  of  AFDC  recipients  and 
OBRA/Qualified  Medicare  Beneficiaries  (QMB)  recipients  in  the  United  States  District  Court 
for  the  Western  District  of  Michigan  challenging  the  State  of  Michigan's  failure  to  pay  AFDC 
benefits  at  the  levels  in  effect  in  May  of  1988  as  a  violation  of  the  Medicare  Catasti-ophic  Act, 
42  use  §1396a(e)  (MCCA).  Plaintiffs  challenged  also  the  elimination  of  Medicaid  coverage 
for  OBRA/QMB  beneficiaries. ^ 

The  District  Court  entered  a  temporary  restraining  order  enjoining  the  State  from 
reducing  its  AFDC  benefit  levels  below  those  in  effect  in  May  of  1988.'  However,  the  Court 
denied  Plaintiffs-class'  request  for  preliminary  injunction  and  held  that  the  MCCA  prohibited 
only  those  reductions  in  AFDC  levels  made  for  the  explicit  purpose  of  paying  for  increased 
Medicaid  costs.  The  decision  is  on  appeal. 

Meanwhile,  MLS  filed  a  lawsuit  on  behalf  of  plaintiff  class  of  AFDC  recipients  and 
former  recipients  of  OBRA/QMB  as  a  related  case  to  Babbitt  in  which  plaintiffs  are  challenging 

'  The  cuts  were  implemented  in  March,  1991  and  Plaintiffs' 
fears  were  realized  as  the  number  of  evictions  soared,  etc. 

^  Babbitt  V  Michigan,  No.  4:91-CV-56  (W.D.Mich.)  final  decisions  from 
District  Court  October  29,  1991.  On  appeal  to  the  Sixth  Circuit  Court  of 

'  In  May,  1991,  Michigan  was  paying  AFDC  benefits  approximately  15%  below 
the  levels  in  effect  in  May,  1988. 



HHS'  authority  to  approve  of  Michigan's  Medicaid  plan  amendments  when  the  State  is  paying 
AFDC  benefits  at  a  level  below  those  in  effect  in  May,  1988.  That  case  is  pending/ 

The  State  of  Michigan  continues  to  pay  AFDC  benefits  at  a  substantially  reduced  rate, 
and  despite  two  recent  adjustments,  AFDC  benefit  levels  in  January,  1992  were  13%  lower  than 
the  benefits  paid  to  recipients  in  January,  1991 .  (See  (Generally,  Center  on  Budget  and  Policy 
Priorities,  The  States  and  the  Poor,  How  Budget  Decisions  in  1991  Affected  Low  Income 
People).  There  are  approximately  650,000  AFDC  recipients  in  Michigan  ~  the  reductions  in 
grant  amounts  means  that  those  families  are  living  at  approximately  56%  of  the  poverty  level, 

In  April,  1991,  DSS  announced  that  it  would  no  longer  pay  delinquent  water  and 
sewerage  bills  under  its  Emergency  Needs  Program  for  renters  and  homeowners.  Under  long- 
time policy  and  detailed  rules  defining  the  ENP  program,  DSS  paid  for  all  utilities,  including 
water  if  the  claimants  met  the  eligibility  criteria  and  were  facing  an  emergency  as  defined  in 
statute  and  rules. 

In  May,  1991,  MLS  filed  suit  on  behalf  of  a  class  of  plaintiffs  eligible  for  ENP  services 
for  delinquent  water  bills,  but  for  the  policy  change;  and  was  claimed  that  the  policy  change 
which  was  adopted  by  administrative  fiat  violated  the  Michigan  Administrative  Procedures  Act.* 
A  temporary  restraining  order  was  entered  was  entered  on  May  17,  1991  and  plaintiffs  presented 

*  In  a  similar  lawsuit,  the  U.S.  District  Court  in  Massachusetts  issued 
an  opinion  declaring  that  the  State's  reduction  of  AFDC  benefits  levels  below 
those  in  effect  in  May,   1988,  violates  MCCA.     Avanzato  v  HHS.  et  al. . 

No.  91-30205-F. 

*  Saxon,  et  al.  v  Miller,  et  al.  No.  91-69009-AZ,   Ingham  Circuit  Court. 



proofs  at  an  evidentiary  hearing  for  preliminary  injunction  in  June.  The  proofs  demonstrated 
that  irreparable  harm  was  occurring  to  plaintiffs  living  without  water  or  facing  interruption  of 
services.  At  that  time,  thousands  of  Michigan  residents  were  facing  termination  of  water 
service.  Several  named  plaintiffs  had  survived  without  water  services  for  up  to  several  weeks, 
relying  on  neighbors  or  the  local  fire  department  to  fill  up  pop  bottles  for  them  in  an  attempt  to 
meet  their  sanitation  and  hygiene  needs.  The  affidavit  of  Jane  Doe  included  in  the  attachments 
demonstrates  graphically  the  harm  incurred  by  plaintiffs.  (Attached  "A").  - — 

Testimony  from  experts,  including  Dr.  Myron  Wegman,  M.D.,  substantiated  plaintiffs' 
claims  that  lack  of  adequate  water  supply  posed  a  threat  to  the  health  of  the  individuals  directly 
affected  and  potentially  the  general  public. 

The  court  continued  the  TRO  in  effect  pending  a  ruling  on  Plaintiffs'  Motion  for 
Preliminary  Injunction.  DSS  rescinded  its  policy  for  non-payment  of  water  bills  in  July,  1991. 

In  May,  1991,  Governor  Engler  convened  a  meeting  of  the  State  Administrative  Board 
to  approve  resolutions  for  transfer  of  appropriations  between  line  items,  including  a  resolution 
to  move  funds  out  of  the  line  item  for  General  Assistance  benefits  and  into  account  for  SSI 
supplements.  Medicaid,  etc.  DSS  immediately  began  implementing  plans  for  termination  of  the 
GA  program  and  sent  notices  to  clients  at  the  end  of  May  that  all  GA  benefits  were  ending 
effective  June  1,  1991. 

Several  members  of  the  Legislature  filed  suit  against  the  Governor  and  the  State 
Administrative  Board  challenging  the  proposed  transfers  as  unconstitutional  and  in  violation  of 


the  Separations  of  Powers  clause  of  the  Michigan  Constitution.*  Although  the  lower  court 
denied  the  plaintiffs'  request  for  relief  the  Court  of  Appeals  issued  a  preliminary  injunction 
enjoining  the  transfers. 

Meanwhile,  plaintiffs  in  Saxon  filed  an  amended  complaint  on  behalf  of  GA  recipients 
threatened  with  termination  of  all  cash  assistance  on  June  1st.  Because  of  the  injunction  in 
Dodak.  plaintiffs  did  not  have  to  pursue  their  claims  concerning  termination  of  the  GA  program. 


The  Legislature  and  Governor  reached  an  agreement  on  June  16th  providing  supplemental 
appropriations  for  the  AFDC  program,  families  receiving  GA  and  various  other  line  items, 
including  Medicaid  and  foster  care.  Benefit  levels  for  AFDC  and  family  GA  were  increased  by 
8.50%,  resulting  in  a  ratable  reduction  of  8.5%.  However,  GA  payments  for  single  GA 
recipients  were  reduced  an  additional  12%,  for  a  total  reduction  of  29%,  resulting  in  benefit 
levels  of  approximately  $170.00  per  month  to  GA  recipients.  Recipients  of  GA  who  could  prove 
they  were  disabled  would  be  spared  the  additional  12%  reduction.  Since  no  determination  of 
disability  had  been  made  for  any  GA  recipient,  disabled  recipients  who  eventually  proved  their 
disability  would  have  to  wait  to  receive  supplement  some  time  in  the  future. 

The  GA  program,  the  implementation  of  the  disabilit>'  supplement,  and  the  Executive's 
proposal  for  further  reductions  in  the  Medicaid  program,  the  Emergency  Assistance  program  and 
the  state  funded  indigent  medical  care  become  the  centerpiece  of  discussions  for  the  1992 

Dodak,  et  al.  Engler,  et  al.  ,  Ingham  County  Circuit  Court,  No.  91-68942- 
CZ;  Court  of  Appeals  decision,   reporter  190  MA  260  (1991), 




The  huge  reduction  in  the  amount  of  GA  grants  had  already  proved  devastating  for  GA 
recipients,  especially  disabled  and  older  recipients  who  could  not  even  pay  their  rental  obligation 
out  of  the  monthly  benefits.  Data  from  emergency  providers  including  temporary  shelters  and 
soup  kitchens  continued  to  show  that  thos  agencies  could  not  meet  the  increasing  need  of 
Michigan's  poor.  (See  generally,  More  Water  in  the  Soup.  Michigan  League  for  Human 
Services,  Attached  B). 


The  Legislature  enacted  the  appropriation  for  DSS  for  fiscal  year  1992  on  September  28, 

1991.  The  budget  which  was  passed  consisted  essentially  of  the  Governor's  proposals  for  DSS. 

The  main  provisions  of  PA  1 1 1  are  as  follows: 

•  Elimination  of  all  funding  for  GA  for  single  adults  and  married 
adults  without  children. 

•  Creation  of  a  State  Disability  Assistance  Program  for  several 
categories  of  disabled  persons,  the  most  significant  of  which,  "is 
a  person  who  is  medically  diagnosed  as  incapacitated  and 
unavailable  for  work  for  at  least  90  days". 

•  Elimination  of  the  Emergency  Needs  Program  and  distribution 
of  limited  funds  to  the  counties  in  the  form  of  block  grants  to  use 
for  emergencies  with  no  guidance  from  the  State. 

•  Elimination  of  the  Indigent  Medical  Care  Program  and 
distribution  of  limited  fiinds  to  the  counties  in  the  form  of  block 
grants  to  use  for  indigent  medical  care  with  no  guidance  from  the 



On  October  2,  1991 ,  MLS  filed  a  Supplemental  Complaint  on  behalf  of  a  class  of  former 
GA  recipients  who  were  entitled  to  receive  continued  assistance  because  they  are  disabled. 
Plaintiffs  alleged  that  DSS  violated  their  right  to  constitutional  due  process  in  that  they  were  not 
given  adequate  notice  of  the  termination  of  GA  benefits,  the  criteria  for  the  disability  assistance 
program,  and  were  deprived  of  aid  pending  evaluation  of  their  eligibility  for  SDA. 

During  the  preliminary  injunction  hearing  plaintiffs  produced  incredible  proofs  of  the 
harm  occurring  to  class  members  who  although  severely  disabled  were  without  any  source  of 
income.  Some  of  the  declarations  admitted  into  evidence  are  included  in  the  attachments.  The 
declarations  provide  graphic  illustration  of  the  deficiencies  in  the  program,  which  deprives  aid 
to  people  in  such  obvious  need. 

Here  are  some  examples  from  October,  1991  when  the  cuts  had  just  occurred: 

o  person  seriously  injured  in  a  car  accident, living  without  gas  and 
under  notice  of  eviction, 

•  person  suffering  from  polio,  asthma,and  diabetes,  living  in  an 
apartment  with  no  heat,  water,  or  electricity,  and  unable  to  pay  for 

•  sixty-year  old  person  living  in  a  shelter  following  hospital 
release  for  emphysema,  and  hypertension, 

•  56  year  old  resident  of  adult  foster  care  home  recuperating 
from  heart  surgery,  suffering  from  severe  emphysema,  unable  to 
pay  for  himself,  and  out  of  medications. 

The  trial  court  in  a  lengthy  opinion  granting  preliminary  injunction,  to  plaintiffs  described 

the  enormous  harm  to  plaintiffs  unfolding  within  the  2  weeks  following  termination  of  benefits: 

The  fact  that  the  foregoing  people  are  not  qualified  for  benefits  is 
only  part  of  the  story.  The  "rest  of  the  story"  is  filled  with 
chapters  about  people  who  may  lose  their  homes,  people  forced 



from  their  apartments,  who  cannot  pay  utilities  or  purchase 
medicine.  This  story  is  also  about  people  whose  families  have 
been  ruptured,  whose  privacy  has  been  taken  away,  people  who 
must  sleep  on  the  linoleum  floors  of  noisy  and  overcrowded 
shelters,  and  who  have  been  subjected  to  a  host  of  other 
indignities.  The  assertions  of  immediate  and  irreparable  harm  are 
established  beyond  question. 

Of  the  cases  considered  by  this  court,  it  is  difficult  to  think  of  an 
instance  in  which  granting  the  requested  injunctive  relief  is  more 
clearly  in  the  public  interest.  Granting  this  relief  would 
ameliorate,  at  least  in  part,  some  of  the  unjustified  suffering 
brought  about  through  the  unlawful  termination  of  those  benefits 
by  the  Department.  It  would  permit  some  of  these  people  to 
remain  in  their  homes,  remain  with  their  families,  pay  their 
utilities  and  reestablish  at  least  a  semblance  of  normality  in  their 

In  addition,  granting  injunctive  relief  here  will  permit  the  DSS  to 
put  into  place  a  mechanism  for  identifying  those  persons  who  do 
qualify  for  disability  payments.  It  will  to  some  extent  help  restore 
confidence  in  the  ability  of  the  DSS  and  ultimately  the  State  of 
Michigan  to  address  the  important  social  problems  which  now 
confront  the  people  of  this  State.  Slip  Op.  Saxon  v  Miller.  Id. 

Although,  the  trial  court  ordered  DSS  to  establish  a  plan  for  identifying  disabled  people 
and  to  pay  benefits  pending  evaluations  of  eligibility,  DSS  filed  an  emergency  appeal  and  the 
Court  of  Appeals  issued  a  stay  of  the  preliminary  injunction.  The  preliminary  injunction  was 
reversed  by  the  Court  of  Appeals  on  November  11,  1991  and  leave  to  appeal  to  the  Michigan 
Supreme  Court  was  denied. 

Despite  enormous  public  outcry  and  hearings  in  the  Legislature  inquiring  into  the 
practices  in  the  SDA  program,  DSS'  lawless  practices  which  deprive  thousands  of  eligible 
former  recipients  of  desperately  needed  assistance  continue.  In  fact,  only  approximately  3,000 



additional  persons  have  been  determined  eligible  for  SDA  since  its  inception  October  1st  J 

The  principal  reasons  for  the  shockingly  low  number  of  SDA  recipients  are  found  in  the 

practices  employed  by  DSS  and  the  rigid  and  narrow  definition  of  disability  being  employed  by 

DSS  despite  the  broadly  written  statutory  definition  of  disability. 

Studies  of  the  GA  population  undertaken  prior  to  the  cessation  of  the  program  show  that 

as  many  as  40,000-50,000  former  recipients  suffer  from  disabilities  or  other  impairments  which 

may  qualify  them  for  SDA;  (studies  attached  "E"),  yet  only  7,500  individuals  are  receiving  SDA 



The  restrictions  on  access  to  assistance  programs  and  drastic  reductions  in  scope  of 

services  and  amount  of  benefits  for  poor  persons,  have  as  a  result  of  recent  actions  taken  by  DSS 

become  more  severe.    What  follows  is  a  discussion  of  the  current  reductions  in  assistance 

programs  in  Michigan,  and  consequences  of  those  cutbacks  for  the  poor  in  Michigan. 

SDA  Program 

The  problems  with  misclassification  of  disabled  people  not  only  arose  in  the  transitional 
period  but  obviously  continue. 

The  Detroit  Free  Press  reported  on  February  7,  1992  "  the  plight  of  a  58  year  old 
Oakland  County  woman'  who  had  a  stroke  January  25,  1992.  The  divorced  woman  had  once 

^  Forty-five     hundred     (4500)     Medicaid     eligible     recipients  were 

automatically  transferred  to  the  SDA  program  in  October,  1991  -  thus  only  3,000 
additional  disabled  individuals  have  been  identified  by  DSS  in  five  months. 



been  a  nursing  assistant,  but  because  of  a  strained  back,  high  blood  pressure,  and  arthritis,  was 
supported  by  General  Assistance  benefits  until  the  program  was  narrowed  to  eliminate  the 
nondisabled  October  1st.  Her  doctor  filled  out  a  form  for  the  new  Disability  Assistance 
program.  The  newspaper  continued,  "But  without  laying  eyes  on  her,  the  bureaucracy  turned  her 
down  at  the  end  of  November.  At  a  review  two  weeks  later,  a  medical  social  worker  said  her 
blood  pressure  wasn't  that  high."  This  woman  is  now  out  of  the  hospital,  but  in  need  of 
physical  therapy.  She  only  after  very  recently  after  being  named  as  a  plaintiff  in  a  proposed 
lawsuit  was  determined  eligible  for  SDA  benefits.  (Editorial  attached).  Another  61  year  old 
woman  suffering  from  angina  pectoris,  arthereosclerotisic,  heart  disease,  duodenal  ulcer, 
esophagitis,  diabetes,  and  uterine  tumors,  waited  five  months  to  be  determined  eligible  despite 
her  doctor's  letter  to  DSS  in  October  stating  that  she  is  disabled. 

A  49  year  old  woman  suffering  from  bipolar  disorder,  severe  osteoarthritis,  and  ruptured 
disc,  applied  for  benefits  in  September  1991  and  still  has  not  received  a  decision  in  her  case. 
Her  doctors  submitted  the  requested  forms  stating  she  is  unemployable  several  months  ago. 

Some  of  the  most  extraordinary  evidence  came  from  private  attoreys  hired  by  hospitals 
to  secure  Medicaid  coverage  for  patients.  These  attorneys  reported  to  the  Michigan  Legislature 
in  October,  1991  that  many  seriously  ill  clients  of  theirs  had  been  terminted  from  General 
Assistance  on  the  grounds  that  they  were  "able  bodied",  including  a  56  year  old  resident  of  an 
adult  foster  care  home  recuperating  from  heart  surgery,  suffering  from  severe  emphysema, 
unable  to  care  for  himself,  and  out  of  medications.  A  copy  of  that  letter  is  attached  (Med  Law 
Associates  Letter  to  Rep.  David  HoUister  "C"). 

We  continue  to  observe  that  many  persone  who  are  in  fact  severly  disabled  do  not  receive 



benefits  because  of  administrative  barriers  which  include: 

•  As  staff  is  reduced,  and  existing  staff  overwhelmed  by  crises 
generated  by  benefit  cutoffs,  many  people  seeking  help  will  simply 
not  be  seen. 

•  Medical  evidence  is  hard  to  obtain,  especially  when  tiie  same 
will  not  provide  for  medical  care  for  General  Assistance  recipients. 

•  The  experience  in  Michigan  at  this  point  is  that  doctors  who  do 
complete  forms  frequentiy  fill  them  out  inadequately,  and  agency 
workers,  who  are  under  an  obligation  to  assist  in  gathering  medical 
evidence,  do  not  in  fact  provide  assistance. 

Testimony  and  discovery  in  litigation  has  established  that  standards  by  decision  makers 

vary  enormously,  and  that  persons  are  found  not  disabled  even  if  there  is  no  possible  available 

job  that  they  could  fill.  According  to  policy,  agency  workers  do  not  take  into  consideration  age, 

training,  or  experience.  The  statewide  disallowance  rate  for  SDA  continues  to  be  a  shockingly 

high  rate  of  75%. 


The  Emergency  Need  Program  is  a  joint  federal-state  program  providing  benefits  to 
eligible  applicants  facing  an  emergency  as  defined  in  rules  and  who  need  one  or  more  of  a  wide 
range  of  services,  including  utilities,  shelter,  property  taxes  and  various  other  essential  services. 

The  Legislature  enacted  a  supplemental  appropriation  for  the  Emergency  needs  Program 
and  Indigent  Medical  Care  Program  (SMP)  on  November  21,  1991  which  provided  funds  for 
those  porgrams  and  reconstituted  ENP  and  SMP  as  single-state  agency  programs.  1991  PA  139. 

Despite  the  supplemental  funds,  DSS  issued  emergency  rules  redefinng  the  ENP  program 
and  renaming  it  the  State  Emergency  Relief  Program.  The  so-called  new  program  consists  of 



dramatic  revisions  in  eligibility  requirements  for  emergency  assistance,  so  drastic  as  to  preclude 
virtually  all  applicants  from  receiving  emergency  benefits. 

In  addition,  the  scope  and  amount  of  services  are  so  restricted  that  issuance  of  emergency 
assistance  is  unlikely  to  ameliorate  important  emergencies.  A  few  exampless  of  the  drastic 
reductions  follow: 

•  excluding  services, 

•  limiting  grants  of  service, 

•  imposing  ceilings  on  the  dollar  amount  of  services  that  may  be 
provided  within  a  single  fiscal  year,  ten  year  period,  and  a 

•  creating  client  contribution  amounts  which  exceed  the  amount 
in  the  client's  grant  for  the  service, 

•  assuming  contributions  from  persons  who  have  no  income, 

•  arbitrarily  excluding  from  relocation  assistance,  certain 
homeless  persons, 

•  eliminating  secirity  deposit  payments, 

•  imposing  requirements  on  eligibility  for  assistance,  including 
the  affordable  housing  rule,  which  preculded  assistance  for 
applicants  whose  housing  costs  exceed  teh  lower  of  $160  for  single 
persons  or  70%  of  their  monthly  income, 

•  requiring  all  applicants  to  demonstrate  that  they  have  a  montly 
income  of  at  least  $165.00. 

The  restrictions  on  eligibility  and  amount  of  benefits  are  resulting  in  enormous  hardship 
to  the  poor  in  Michigan,  who  are  no  longer  receiving  assistance  with  shelter  or  utilities.  One 
example  of  a  35  year  old  SSI  recipient  illustrates  dramatically  the  impact  of  the  reductions  in 
ENP  on  the  poor  and  persons  with  disabilities.  (Attached  Declaration  A).  Ms."S"  suffers  from 



insulin  dependent  diabetes,  ketoacidosis  diabetes,  and  chronic  depression  so  severe  she  has  been 
hospitalized  numerous  times  following  suicide  attempts.  Her  diabetic  condition  is  life- 
threatening  and  requires  hospitalization  and  constant  monitoring.  Despite  her  relatively  low 
monthly  rent  of  $200.00,  she  cannot  obtain  emergency  assistance  to  help  pay  her  deliquent  water 
bill  because  of  the  housing  affordability  policy  which  precludes  eligibility  for  individuals  whose 
rent  exceeds  $160.00. 

We  are  aware  of  hundreds  of  persons  in  desperate  need  of  emergency  assismce  for  rent 
and  utilities  who  are  daily  being  turned  away  from  DSS  offices.  The  most  outrageous  expamples 
include  homeless,  indigent  persons  who  cannnot  get  assistance  to  pay  any  rent  or  shleter  costs. 

The  patent  absurdity  of  the  emergency  assistance  rules  is  reminescent  of  the  law  review 
article  discussing  the  maze  of  bureaucracy  in  the  New  York  City  Welfare  Department.  The 
article  is  titled,  Charles  Dickens  Meets  Franz  Kafka:  sadly  it  is  an  apt  analogy  to  the  present 
structure  of  emergency  programs  in  Michigan.  Anna  Lou  Dehovenon,  17  New  York 
University.  Rev.  of  Law  and  Social  Change  231. 


Direct  health  care  programs  have  not  fared  any  better  than  cash  assistance  and  emergency 
needs  programs  in  Michigan.  In  fact,  during  October  and  November,  1991,  there  was  no 
indigent  medical  care,  with  the  limited  exception  of  payment  for  life-sustaining  prescriptions. 

The  case  of  Eva  Fredericks,  the  Copemish  resident,  who  stretched  her  heart  medications 
resulting  in  a  stroke  and  later  her  death  is  widely  known.  There  are  thousands  of  cases  where 
persons  in  need  of  medical  care  are  deprived  of  that  care.  (See  attached  affidavits  of  Vernon 



and  Mary  Faircloth,  A). 

The  state  is  operating  a  two-tier  medical  program  ,  at  present,  which  provides  very 
limited  health  to  poor  persons  who  are  not  receiving  SDA  or  family  assistance.  The  attached 
chart  distributed  by  Gerald  Miller  at  a  February  6,  1992  hearing  shows  the  disparities  in  indigent 
health  care.  (Attachment  D). 

Following  are  responses  to  the  Committee's  specific  questions  regarding  Michigan's 
health  coverage  and  Medicaid  State  Plan: 

1.  Which  of  the  many  Congressionally-mandated  expansions  to  the  Medicaid 
program  has  Michigan  implemented? 

Michigan  has  expanded  pregnancy  benefits  and  children's  benefits  to  federal 
maximums.  Michigan  has  implemented  benefits  to  Qualified  Medicare  Beneficiaries. 
Michigan  has  expanded  benefits  to  community  spouses  of  nursing  home  residents,  at 
federal  minimum  for  income  and  assets. 

2.  What  have  been  the  increases  in  the  numbers  of  those  receiving  each  type  of 
Medicaid  benefit  and  those  receiving  more  benefits,  by  type? 

3.  To  what  extent  have  those  expansions  contributed  to  the  burgeoning  costs  of 
the  program,  broken  down  by  the  cost  of  each  expansion? 

See  national  data  in  GAO  report,  attached.  (Attachment  "E"). 


58-688  0-92-6 



4.  What  other  factors  are  fueling  health  care  cost  inflation  and  increasing 
demands  on  the  state's  Medicaid  program  and  what  have  been  their  impacts  on  access  to 
care  and  the  quality  of  care? 

Increasing  hospital  and  nursing  home  rates,  and  probably  pharmacy  and  diagnostic 
items  appear  to  have  the  biggest  impact  on  health  care  cost  inflation. 

5.  What  initiatives  have  been  undertaken  by  state  and  local  officials  to  continue 
to  offer  health  care  services  with  dwindling  federal  and  state  dollars? 

Wayne  County  has  incurred  costs  of  $4  million/month  since  October  1  when  state 
stopped  making  payments  of  County  Care  dollars. 

6.  What  alternatives  exist  to  provide  health  care  services  and  other  services  with 
public  health  ramifications,  i.e.efforts  to  provide  food,  drug  abuse  education,  and 

Port  Huron-free  "People's  Clinic" 
Lansing  ~  free  "Friendship  Clinic" 
Detroit  ~  free  Holy  Trinity  Clinic 

Providers  at  these  clinics  seek  specialty  care  from  area  hospitals,  universities, 
apparently  with  success.  Attendance  at  these  clinics  limited  by  geography  and  limited 



7.  How  much  have  Medicaid  funding  levels  been  reduced  as  a  result  of  the 
state's  budget  deficit? 

a.  $11  million  pulled  out  of  Medicaid  which  paid  for  Medicaid  benefits  for 
seniors/disabled  with  incomes  within  90%  poverty  level. 

b.  See  Exhibit  "B"  for  the  exact  amount  of  Medicaid  reductions  from  FY  90- 
91  to  FY  91-92.  Overall-$253  million  in  savings  created.  But  some  of  the  larger  savings 
items  are  things  which  Engler  is  doing  little  or  nothing  to  foster—eg  $46  million  by 
developing  a  nursing  home  estate  recovery  program  and  making  adult  children 
responsible  for  their  parents.  Also,  $48.5  million  savings  was  expected  from  reducing 
rates  of  County  Medical  Facilities,  but  they  haven't  been  reduced. 

c.  Actual  "cuts": 

1991  -  OBRA   $11  million 

Chiropractic  Services 
Some  physical  therapy 

Virtually  all  residential  treatment  for  substance  abuse 

1992  -  AU  of  '91  cuts  plus: 

Podiatry  ($1.8  million) 
Dental  ($18  million) 

Medical  transportation-limited  to  $.21 /mile  or  $3  for  a  round  trip 
(whichever  is  greater),  which  client  can  only  get  by  applying  for 
reimbursement.  This  virtually  eliminates  cabs.  Vans  for  persons  with 
special  needs  cut  to  $21/trip. 

Because  DSS  has  not  reduced  all  of  the  items  listed  in  the  budget,  there  probably  will  be 

a  deficit  in  the  Medicaid  account. 



8.  How  many  people  (1)  no  longer  receive  Medicaid  benefits?  (2)  receive  fewer 

Persons  cuts  off  AFDC  as  a  result  of  ratable  reduction  lost  Medicaid 
figures  cannot  be  determined.  However,  of  interest,  medically  needy  families  (spend- 
down  families)  increased  from  18,000  in  January  1991  to  24,000  in  September,  1991. 
This  could  represent  a  shift  from  AFDC  to  the  medically  needy  program,  or  it  could 
simply  mean  that  more  families  had  incomes  low  enough  to  qualify  for  medicaid  between 
January  and  September.  Also,  of  interest,  in  January  1991  there  were  17,470  cases  open 
for  pregnant  women,  and  in  September,  1991  the  number  had  risen  to  27,509.  This  may 
suggest  a  number  of  people  losing  AFDC  due  to  the  cuts,  and  those  who  were  pregnant 
would  then  be  transferred  to  the  Mich-Care  (Pregnant  women)  category. 

Elderly  and  disabled  persons  with  incomes  between  $360  and  485  (approximate, 
depending  on  county  of  residence)  lost  Medicaid. 

Persons  who  lost  Medicaid  due  to  OBRA  cuts--about  16-17,0(X). 

(2)  Receive  fewer  benefits? 

All  adults  have  lost  dental,  chiropractic,  podiatry,and  transportation.  For  the  most  part, 
children's  benefits  have  remained  intact,  except  that  DSS  has  cancelled  its  outreach  contracts  in 
EPSDT,  which  may  well  mean  that  children  are  utilizing  services  at  a  lower  rate. 



We  would  be  remiss  to  overlook  the  closure  of  state  mental  health  facilities  already 
underway  .  The  dumping  of  individuals  suffering  from  serious  mental  illnesses  into  the  streets 
to  fend  for  themselves  is  among  the  most  cynical  and  harmful  policies  being  carried  out  in  this 

The  experience  of  the  former  General  Assistance  recipients  in  the  State  of  Pennsylvania 
in  their  attempt  to  find  employment  provides  some  clue  as  to  the  current  situation  and  likely 
developments  in  Michigan  for  the  so-called  "employables"  who  are  no  longer  receiving  any  state 

In  Pennsylvania,  where  the  reductions  were  not  as  drastic  as  in  Michigan,  the  data 

showed  that  very  few  former  recipients  found  employment  in  the  year  following  the  cuts: 

In  the  year  after  aid  terminated  63.5%  of  the  "employables"  were 
not  able  to  obtain  any  employment!  Since  23.9%  had  been 
employed  while  they  were  receiving  General  Assistance,  it  appears 
that  only  about  12.6%  of  the  caseload  that  had  not  been  employed 
while  receiving  General  Assistance  worked  at  some  time  in  the 
year  following  termination  of  General  Assistance.  Moreover,  by 
looking  at  information  in  state  employment  records,  the  agency 
reports,  much  later  in  its  report,  that  64%  of  those  terminated  as 
"employable"  were  not  able  to  obtain  any  "covered  employment" 
(i.e.,  covered  by  Unemployment  Compensation  and  therefore  a 
matter  of  record  with  the  State)  in  five  quarters  following 
termination.  Only  2.7%  obtained  a  job  that  lasted  more  than  a 
year,  and  another  3.9%  obtained  a  job  that  lasted  more  than  9 

Thus,  the  increase  in  any  employment,  and  particularly  the 
increase  in  employment  of  any  duration,  was  slight.  Nonetheless, 
as  the  State  notes,  there  was  a  significant  increase  in  the  number 



of  employers  contacted  by  former  General  Assistance  recipients 
seeking  employment  increased  from  4.5%  while  the  recipients 
were  still  receiving  benefits  to  5.1%  after  termination.  As  one 
advocacy  organization  notes,  this  increase  in  .6%  contacts  per 
person  per  week,  if  multiplied  by  the  68,000  persons  the  State 
considered  transitionally  needy  by  the  26  weeks  in  the  survey 
period,  there  would  have  been  one  million  additional  contact  made 
during  this  period  ~  an  astonishing  number  when  compared  to  the 
very  few  jobs  obtained. 

Impact  of  Termination  of  Benefits  for  "Employables"  in  Michigan.  Massachusetts,  and 
Pennsylvania,  Center  on  Social  Welfare  Policy  and  Law,  1992. 

The  situation  in  Michigan  can  only  be  worse  than  that  of  Pennsylvania,  with  double  digit 
unemployment  confounding  the  prospects  of  employment  for  thousands.  The  choice  made  by 
Michigan  to  drastically  reduce  human  services  in  a  recessionary  economy  is  unwise  and 


On  February  27,  1992,  Michigan  Legal  Services  filed  suit  on  behalf  of  several  plaintiff 
classes,  including  plaintiffs  representing  SDA,  ENP,  and  Indigent  Medical  Care  classes. 

Plaintiffs  are  challenging  the  unlawful  policies  and  practices  in  these  programs,  which 
are  discussed  above  in  some  detail.  Faircloth.  et  al.  v  Miller,  et  al. .  Ingham  County  Circuit 
Court,  Case  No.  . 

It  is  apparent  from  our  experience  that  litigation  and  advocacy  do  not  begin  to  address 
the  enormous  misery  and  crises  heaped  upon  Michigan's  poor,  ill,  elderly  and  young. 
Moreover,  private  agencies  and  charities  cannot  possibly  fill  the  gap  left  by  the  cuts. 

Soup  kitchens  report  that  they  are  serving  more  meals,  and  serving  them  earlier  in  the 



month.  Operators  believe  it  likely  that  clients  need  more  food  aid  because  they  have  had  to  sell 
food  stamps  to  pay  rent,  have  had  to  move  from  housing  with  cooking  facilities  to  housing 
without  cooking  facilities,  or  become  homeless. 

The  Department  paid  rent  directly  for  GA  recipients.  When  landlords  received  notice 
from  DSS  that  no  further  rent  payments  would  be  made,  massive  eviction  ensued,  social 
welfare  organizations  report  there  has  been  a  dramatic  increase  in  illegal  evictions.  These 
organizations  cannot  provide  assistance,  however,  because  they  are  already  overwhelmed  by 
crises  and  cannot  handle  more  persons,  particularly  when  their  own  public  and  private  funding 
have  declined. 

The  attached  pages  from  a  lengthy  study  of  emergency  providers  conducted  before  the 
most  drastic  reductions  reveal  that  the  emergency  in  Michigan  is  not  and  cannot  be  met  by 
private  agencies.  More  Water  In  The  Soup,  supra. 

The  federal  government  must  take  a  look  at  possible  measures  to  provide  short-term 
emergency  relief  to  this  State  and  long-term  solutions  must  be  found  which  include  assistance 
programs  which  provide  benefits  to  the  elderly  and  disabled  not  eligible  for  traditional  federal 
programs  and  for  single  adults  in  transition,  especially  in  times  of  high  unemployment. 

Further,  the  federal  government  can  and  should  require  states  which  like  Michigan, 

receive  huge  amounts  of  federal  match  funds  for  the  Medicaid  program,  to  provide  other 

assistance  and  emergency  benefits  to  the  poor.  The  crisis  in  Michigan  exemplifies  the  absurdity 

of  a  large  medicaid  program  which  cannot  meet  the  needs  of  the  poor,  due  to  deprivation  of 

other  essential  services. 

Strict  enforcement  of  the  MCCA  would  go  a  long  distance  in  resolving  the  dilemma. 
We  appreciate  the  opportunity  to  submit  this  written  statement  and  to  testify  before  the 

Sub-committee  on  issues  of  enormous  importance  to  the  most  disadvantaged  citizens  in 





Gaping  holes  remain  despite  Engkrs  claims 

he  plight  of  a  58-year-old  Oak- 
land County  woman  who  was 
rejected  for  Michigan's  new  dis- 
ability assistance  diows  that  de- 

-  serving  people  are  plunging  through  the 
:  safety  net  Gov.  John  Engler  Wednesday 
;  called  one  of  the  nation's  strongest 

'.  The  divorced  onetime  nursing  assistant, 
;  who  has  a  strained  back,  high  blood  pres- 

sure  and  arthritis,  got  general  assistance 
:  (GA)  until  that  was  abolished  Oct.  1.  Soon 
:  ifter,  she  got  her  doctor  to  fill  out  a  form  for 
:  the  new  disability  assistance.  But  without 

l^ing  eyes  on  her,  the  bureaucracy  turned 

•  her  down  at  the  end  of  November.  At  a 
review  two  weeks  later,  a  medical  social 
worker  said  her  blood  pressure  wasn't  that 

•  high.  She  had  a  stroke  Jan.  25. 

Now  out  of  the  hospital,  she  needs 

-  physical  therapy  but  has  neither  insurance 
^  nor  income.  The  state  still  hasn't  classified 
^  her  as  disabled. 

Making  due  provision  for  how  state 

-  policies  work  in  the  world  is  a  key  challenge 
for  Gov.  Engler  and  the  Legislature  as  they 
work  out  a  budget  for  the  Oct.  1  fiscaT; 

Wednesday  night,  Gov.  Engler  outlined 
^  his  $21  billion-plus  proposal  in  terms  too 
^  broad  to  see  what  it  really  means  that  he 

■  wants  to  hold  the  line  on  taxes,  maintain  his 

■  commitment  to  education  funding,  and  as- 
■sure  current  levels  of  social  service  pay- 
'ments  to  families,  children,  the  aged  and 

the  disabled.  Details  of  the  budget  proposal 

were  expected  today. 

Mr.  Engler  advanced  good  ideas  on 
extended  day  kindergarten  for  at-risk  chil- 
•dren  and  tutoring  "our  youngest  students" 
iin  basic  skills,  for  example,  but  did  not  say 
3iow  much  of  the  need  will  be  met.  Nor  did 
Tie  evince  the  level  of  commitment  to  school 
^finance  equity  vital  to  the  outcome. 
'  As  for  his  "safety  net,"  the  state  still  has 
not  even  notified  people  who  used  to  get  GA 
that  the  new  disability  program  exists.  As  a 
'result,  few  of  the  increased  number  of 
beggars  in  wheelchairs  or  on  crutches  in 
downtown  Detroit  seem  to  have  heard  of  it. 
And  the  case  of  the  Oakland  woman  shows 
how  a  decision  on  who  gets  the  new  state 
disability  assistance,  about  $244  a  month  in 
metro  Detroit,  may  disregard  who  ran 
really  ^;et  ;i  lob  or  even  work. 

DSS  DIrct  tDr  Gerald  Miller  ^ays  that 

the  definition  of  disability  is  under  review 
and  may  be  adjusted.  The  problems,  he 
says,  are  essentially  startup  ones.  The 
assignment  of  only  12  medical  social  work- 
ers across  the  state  to  deciding  the  18,000 
to  20,000  pending  applications  for  SDA 
suggests  those  "startup"  problems  may  not 
get  worked  out  soon. 

By  contrast,  Kathleen  Gmeiner,  an  at- 
torney for  Michigan  Legal  Services  here, 
notes  that  the  Social  S^urity  Administra-, 
tion  processes  disability  applications  by 
assigning  values  to  a  person's  age,  woiici 
experience,  training  and  education,  as  well 
as  to  the  medical  or  psychiatric  view  of  the 
work  the  person  can  do.  She  argues  Michi- 
gan ought  to  use  more  generous  standards 
because  people  like  the  Oakland  woman 
have  almost  nowhere  else  to  turn. 

The  governor's  promised  compassion 
doesn't  mean  anything  without  effective 
policies.  So  far,  the  "safety  net"  seems 
designed  to  save  him  and  his  social  pro- 
grams from  the  reputation  of  heartlessness, 
but  their  pulse  seems  mighty  low. 



A  Status  Report  of  Private  Emergency  Services  Providers 



June  1991 

Michigan  League  for  Human  Services 
300  North  Washlngcon  Square  •  Sxiita  401.  Lansing  Michigan  48933  •  (S17)  487-5436 



A  Status  Report  of  Private  Emergency  Services  Providers 
in  Michigan 

Table  of  Contents 

Preface   H 

Summary  of  Rndings   1 

Background   .*   3 

Profile  of  Agencies    4 

Profile  of  Client  Population    9 

Local  View  of  Trends  and  Future  Capacity  •  11 

Conclusion  13 

Recommendations  16 


A  -  Urban/Rural  Differences  17 

B  -  List  of  Surveyed  Counties  :  19 


Major  Geoffrey  Allan  (Board  of  Directors)  Executive  Director,  The  Salvation  Army.  Hartxir  Light.  Detroit 

Sister  Mary  Janice  Belen,  aS.M.  (Advisory  Coundi).  Lansing 

Gloria  Hajduk-Emmons  (Advisory  Coundi)  Disability  Examiner.  Michigan  Department  of  Education,  Kalamazoo 

Pam  Fulton  (Public  Affairs  Committee)  Executive  Director.  Advent  House  Ministries,  Lansing 

Manuel  F.  Gonzalez  (Board  of  Directors)  Director.  Offk»  of  Migrant  Sennces.  Michigan  Department  of  Sodal 

Services.  Lansing 

Noreen  Keating  (Public  Affairs  Committee)  Executive  Director,  Lighthouse,  Pontiac 
Wendy  Lewis  (Public  Affairs  Committee)  Senior  Associate.  United  Way  of  Kent  County.  Grand  Rapids 
Robert  Smith  (Board  of  Diredors)  Executive  Director.  Northwest  Mfchigan  Human  Senrices  Agency,  Traverse  City 

About  ttte  Michigan  League  for  Human  Services 

The  League,  organized  in  1912.  is  a  statewide  organization  working  to  improve  human 
services  in  Michigan  and  to  enhance  the  functioning  of  the  state's  nonprofit  ctiaritable 
organizations.  It  is  supported  by  local  United  Ways  through  the  United  Way  of  Michigan, 
membership  dues,  grants  and  contributions. 




A  Status  Report  of  Private  Emergency  Services  Providers 
in  Michigan 

A  phenomenon  probably  not  experienced  in  Michigan  in  the  last  fifty  years  is 
gripping  the  state's  cities,  towns  and  countryside.  Breadlines  are  everywhere. 
Tens  of  thousands  of  people-invisible  to  all.  but  those  filling  the  soup  bowl  or 
handing  out  the  used  top  coat-are  GnedT  up  each  week  at  church  doors, 
community  centers,  and  shelters  to  get  their  most  basic  of  needs  tnet  The 
following  findings  attempt  to  quantify  and.  to  describe  wtiat  is  happening:  no 
attempt  is  made  here  to  capture  the  human  suffering  and  humiliation  felt  by 
the  people  in  those  lines-the  parent  who  cannot  meet  the  needs  of  a  child, 
the  worker  who  cannot  find  a  job,  the  family  evicted  because  the  rent  money 
was  used  to  fix  an  old  car,  the  wage  earner's  only  transportation  to  an 
essential,  if  meager,  paycheck.  Human  tragedies  such  as  these  do  not 
appear  in  statistical  analyses-ffiey  are,  nonetheless,  the  heart  of  the  matter. 


The  Respondent  Providers 

Experienced  in  service  provision,  over  half  of  the  providers  have  been  around  for  more 
than  fifteen  years  and  provide  multiple  services,  having  grown  with  the  expanding  needs 
of  their  communities.  In  the  respondent  group,  there  is  a  large  dependence  on  private 
funding  sources,  particularly  for  the  one-third  of  the  providers  who  are  directly  affiliated 
with  a  local  congregation  or  a  larger  religious  organization.  Tne  majority  also  depend  on 
the  federal  government  for  a  portion  of  their  funding,  with  providers  of  emergency  shelter 
particulariy  dependent  on  this  source.  The  Red  Cross  has  apparently  evolved  into  more 
than  a  provider  of  traditional  disaster  relief;  chapters  have  become  ongoing  providers  of 
routine  emergency  services  as  well.  For  large  numbers  of  other  respondents,  including 
the  Salvation  Army,  emergency  service  provision  has  also  evolved  into  ongoing  basic 
need  supplementation  for  their  clients  rather  than  periodic  assistance  to  help  handle  a 
nonrecurring  emergency  need.  Over  half  of  the  respondents  reported  having  no  larger 
affiliation,  suggesting  a  truly  private  provision  of  services. 

The  Service  Population 

Clients  of  the  respondent  providers  are  diverse  in  age.  with  neariy  a  quarter  under  the 
age  of  twenty.  They  also  appear  to  be  in  compromised  health:  only  a  third  are 
distinguished  by  providers  to  be  in  good  health,  with  a  sixth  reported  as  having  a 
disability.  Almost  30  percent  are  employed  and  an  estimated  majority  receive  some  type 
of  help  from  government-sponsored  assistance  programs,  suggesting  serious  problems  in 
the  adequacy  of  the  clients'  income,  whether  drawn  from  the  labor  force  or  the  public 
assistance  system. 

The  Scope  of  the  Need 

Over  97,600  people,  including  22.500  persons  under  20  years  old.  are  served  in  an 
average  week  by  the  survey  respondents,  who  represent  an  estimated  18  percent  of  all 
private  emergency  service  providers  in  Michigan.  (See  endnote  for  methodology.)  Using 
this  premise,  it  is  entirely  possible  that  542.000  people  request  some  type  of  assistance 
from  private  emergency  service  providers  in  Michigan  each  week,  induding  neariy 
125.000  children.  Even  assuming  a  degree  of  duplication-that  some  individuals  or 
families  may  receive  several  services  in  a  single  week,  and  the  caseloads  reported  by  the 




Involvement  by  the  private  sector  in  meeting  emergency  needs  reflects  a  long-standing 
tradition  in  the  United  States.  Prior  to  the  'Great  Depression'  of  the  1930s  and  the 
passage  of  the  Social  Security  Act~a  measure  that  addressed  unemployment  compensation, 
old  age  assistance,  aid  to  dependent  children,  maternal  and  child  health,  child  welfare 
services,  crippled  childrens  services,  and  federaf  appropriations  for  public  healtti-private 
service  providers  were  the  major  source  of  assistance  for  those  whose  basic  human  needs 
were  not  met  through  their  labor  or  family  arrangements. 

Religious  organizations  played  a  major  role~as  they  do  today~in  the  private  response  to 
human  need.  Nonprofit  social  sen/ice  agencies  as  well  have  played  a  historic  role  in 
responding  to  basic  needs,  causing  Michael  O'Neill  to  observe  in  The  Third  America  that  "If 
opera  companies  and  Ivy  League  universities  represent  the  establishment  side  of  the 
nonprofit  sector,  social  agencies  represent  its.  .  .  sometimes  heroic,  often  heartrending 

But  it  wasn't  until  the  eariy  1980s,  when  the  nation  was  buffeted  by  a  major  economic 
recession  and  the  private  sector  was  being  asked  by  the  federal  administration  to  take  up 
the  slack  caused  by  a  25  percent  reduction  in  key  health  and  social  welfare  programs,  that 
researchers  took  a  serious  look  at  private  nonprofit  assistance  programs.  They  discovered 
that  religious  congregations  remained  a  vital  force  in  the  provision  of  human  services, 
through  both  their  direct  service  provision  and  their  socializing  of  individuals  to  the 
importance  of  charitable  giving  and  voluntarism.  In  the  eariy  to  mid-eighties,  an  Urban 
Institute  study  confirmed  that  almost  half  of  religious  congregations  nationwide  were 
providing  emergency  food,  and  one  in  three  was-  providing  cash  assistance.  Seventy 
percent  had  increased  their  subsistence  programs  in  response  to  increased  demand. 

In  some  ways  hampering  the  congregations'  ability  to  broadly  Impact  on  the  problems, 
researchers  discovered  that  expenditures  on  subsistence  service  activities  delivered  locally 
are  more  substantial  among  wealthier  congregations  than  poor  ones,  where  the  need  is 
greatest  It  was  discovered  that  black  churches,  which  serve  constituencies  that  often 
contain  disproportionately  large  numbers  of  poor  people,  tend  to  respond  more  readily  to 
appeals  to  help  individuals  in  immediate  need  than  to  other  good  causes;  in  response  to  the 
climate  of  the  eariy  eighties,  many  of  them  instituted  broadened  social  services  programs 
which  remain  today. 

Michigan-specific  data  on  private  social  service  delivery  is  woefully  lacking,  although  the 
League  did  undertake  a  study  in  the  eariy  1980s  which  shed  some  light  on  the  status  and 
services  of  the  state's  voluntary  service  sector.  A  significant  share  of  agencies-one  in  four- 
-were  providing  emergency  services  in  the  areas  of  food,  shelter  and  utilities.  However,  an 
assessment  of  the  scope  of  emergency  services  provision  was  not  a  specific  objective  of 
the  study.  Religious  congregations  were  not  included  among  the  surveyed  service 
providers,  limiting  tiie  usefulness  of  the  study  in  measuring  the  scope  or  focus  of 
emergency  services  being  provided  in  Michigan  during  that  period. 

Between  1989  and  1991.  local  hearings  on  emerging  needs  were  held  quarterly  by  the 
League's  Public  Affairs  Committee  in  various  geographic  areas  in  Michigan,  creating  the 
only  window  available  on  the  activities  of  private  service  providers  prior  to  the  study.  To 
the  degree  that  this  local  testimony  validates  or  conhadicts  the  study's  findings,  it  is 
incorporated  in  the  following  narrative. 



240.  people  each  weeie  forty-three  percent  served  over  100.  and  about  17 
percent  served  over  500.  (See  Figure  1.)  In  the  aggregate,  the  respondent 
providers-which  represent  .an  est^nated  18  percent  of  ail  providers  in  the 
state-assisted  97.600  persons  in  an  average  week.  It  should  be  noted  that 
the  count  of  people  is  not  necessarily  undupltcated-the  same  individual  may 
have  received  several  services  from  an  agency  during  a  single  week.  The 
totals  may  more  accurately  reflect  the  numtjer  of  requests  for  assistance  to 
which  an  agency  responded  in  an  average  week. 

Most  providers  (over  75%)  do  not  Cmit  their  services  on  the  basts  of  gender, 
age.  or  family  structure-they  attempt  to  serve  any  persons  needing 
assistance.  The  remainder  provkie  services  to  special,  categorical 
populations  such  as  abused  women  and/or  children. 

Types  of  Services  Provided 

The  providers  offer  a  broad  range  of  sennces,  emergency  and  othenwise: 
roughly  70  percent  of  the  respondents  reported  providing  at  least  four 
different  types  of  services.  Food  boxes  and  clothing  are  the  most  commonly 
offered  service,  followed  by  transportation  assistance.  (See  Table  1.)  In  rural 
counties,  providers  are  most  likely  to  provkJe  heating  or  other  utility 
assistance  due  in  part  to  different  billing  and  use  patterns  in  those  areas. 

Table  1 

Type  of  Service 

%  of  Respondents 
Providing  the  Service 

Food  Boxes 

Transportation  Assistance 

HeatingAJtility  Assistance 
Prepared  Meals 
Education/Job  Training 
Medical  Care 
Cash  Assistance 
Mental  Healtii  Services 
Dental  Care 


A  large  number-three  in  four  of  the  respondents-also  report  that  they  provide 
information  and  refenal  services.  Some  other  less  common  services  include: 
the  provision  of  furniture,  housing  assistance,  services  for  senior  citizens, 
children's  services,  counseling,  advocacy,  personal  need  items  (e.g..  toile- 
tries), and  legal  assistance.  Providers  appear  to  be  trying  to  tailor  their 
services  to  meet  the  changing  needs  of  their  clients.  For  example,  as  pro- 
viders are  becoming  more  aware  of  the  growing  problem  of  homelessness. 
some  are  initiating  plans  to  move  toward  offering  more  prepared  meals  and 
fewer  food  boxes.  Others  are  experimenting  with  the  provision  of  two  types 
of  food  boxes:  one  to  serve  homeless  clients  and  another  for  those  with 
access  to  utensils  for  food  preparation.  The  boxes  for  the  homeless  are 
generally  more  expensive  to  prepare  as  they  must  include  things  like  paper 
products  and  can  openers.  Personal  mobility  is  also  t)eing  addressed  as  an 

"Our  program  of 
occasional  help  In 
the  neighborhoods 
has  long  since 

Macomb  County 

"We  are  consider- 
ing shifting  to  two 
kinds  of  food 
boxes—one  for 
persons  who  can 
store  and  prepare 
food,  and  one  for 
the  homeless.  .  . 
canned  goods  are 
too  heavy  for 
people  who  carry 
around  everthing 
they  own  all  day." 

Ingham  County 



Seven  in  ten  respondents  were  forced  at  some  point  to  turn  people  away. 
Those  reporting  that  they  are  unable  to  serve  aO  those  in  need  mdacsSB  that 
they  turn  away  between  1  and  500  per  month,  dependent  upon  the  size  of 
the  agency  and  the  scope  of  its  services.  Not  aO  denials  are  due  to  depleted 
resources-some  of  the  persons  turned  away  dont  meet  efigbiity  require- 
ments set  by  the  agency,  either  because  they  don1  belong  to  the  spedaiHTRd 
population  served  by  the  agency,  or  don't  live  in  the  geographic  area  served. 
Others  have  no  forni  of  identification,  or  can't  meet  the  low-income  guidelines 
set  by  the  respondent  A  certain  portion  are  turned  away  because  they 
request  a  service  that  is  not  avaSabie.  One  In  three  have-*  previously  received 
assistance  within  an  agency's  allowable  time  frame.  Rnaliy,  over  40  percent 
are  turned  away  because  the  agency  or  organization  has  reached  its  capacity 
and  can  offer  no  more  services,  .tt  should  be  noted  that  many  agencies  with 
current  income-related  ettgSaility  guidelines  are  lessening  restrictions  as  it  gets 
more  and  more  dfficult  to  pirovide  for  an  individual  or  family  at  or  near  the 
designated  poverty  leveL 

Waiting  Lists 

A  quarter  of  the  respondent  providers  cunently  have  waiting  lists  in  place. 
An  average  of  thirty  persons  are  on  a  single  agency  waitirig  list  at  any  point 
in  time,  and  the  average  wait  is  roughly  seven  weete.  Waiting  Tists  for  emer- 
gency services  providers  appear  to  t>e  a  relatively  new  phenomenon,  and  are 
more  typically  found  where  requests  have  been  made  for  furniture,  housing 
assistance,  weatherization  and  mental  health  or  substance  abuse  counseling. 
For  more  urgent  life-threatening  emergency  needs,  agencies  tend  to  refer 
persons  to  other  providers  rather  than  place  them  on  a  waiting  list 

Agency  Funding 

The  typical"  respondent  provider  receives  funding  from  a  variety  of  sources. 
(See  Rgure  3.)  Eight  of  ten  respondents  utifize  private  donations,  but  less 
than  20  percent  are  solely  dependent  on  them.  The  federal  government  is 
another  major  source  of  funding  for  the  respondents.  Sixty  percent  receive 

Figure  3.  Funding  Sources  of  Average  Provider 

Percent  of  Tunding 


B881  Private  Oanations 


^2  ^e^^e-a" 

Siote  Go-/t 

t      I  United  Woy 

FT]  Uoed  Govt 
[\N  roundotiona 
I      I  Fees 



Demographics  of  Persons  Served* 

For  the  average  respondent  provider,  almost  one-quarter  of  the  persons  - 
served  are  under  the  age  of  20.  with  one  in  two  of  the  agencies  reporting 
that  at  least  half  of  their  clientele  is  20  years  of  age  or  younger.  (See  Figure 
5.)    Using  an  estimate  of  the  share  of  Michigan  providers  reached  by  the 

survey,  this  finding  suggests  that  approximately  125.000  children  have  a  basic 
emergency  need  each  week  in  Michigan  for  which  they,  or  their  parents  for 
them,  are  requesting  assistance  from  private  emergency  services  providers. 
This  projection  of  children's  needs  is  modest  given  that  in  many  agencies, 
persons  requesting  services  on  behalf  of  their  children  are  counted  as  an 
adult  served;  the  children  are  not  included  in  the  count. 

In  the  average  respondent  agency.  15  percent  of  the  service  population  were 
observed  by  providers  as  being  disabled,  with  an  additional  56  percent 
observed  as  being  only  moderately  healthy.  (See  Figure  6.)  This  would 

*  A  significant  portion  of  the  respondent  providers  did  not  answer  itie  questicns  regarding 
sen/ice  population  charactenstics.  Many  of  them  reported  that  such  information  Is  not 
relevant  to  their  provision  of  services  and.  therefore,  they  do  not  collect  ft. 



Pressures  on  the  System 

Trends  over  the  last  three  years  indicate  that  pressure  on  the  private 
emergency  service  sector  is  growing.  Eight  in  ten  providers  report  an 
increase  in  the  total  number  of  persons  served  and  90  percent  see  an 

Rgure  8.  Trends  in  Service  Needs  and  Funding  Support,  1988-1991 

#  Turned     _  Trod 

Reauests     t  Rat 

i  Served 



n  80 


£  60 


S  40 


increase  in  requests  for  assistance  from  people  who  have  not  previously 
needed  help.  (See  Rgure  8.)  Over  two-thirds  report  an  increase  in  requests 
for  repeat  assistance  as  well,  and  half  have  been  forced  to  turn  away  a 
greater  number  of  those  in  need.  They  appear  more  pessimistic,  if  anything, 
than  the  providers  in  an  agency  survey  the  League  undertook  in  1982-83, 
when  slightly  under  half  of  the  agencies  reported  that  they  could  not  keep  up 
with  the  increased  demand.  Fully  94  percent  of  agencies  providing 
emergency  services  felt  increased  demand  during  the  economic  downturn  of 
the  earty  1980s. 

During  the  current  period,  over  60  percent  of  the  respondents  have  expanded 
the  number  and  types  of  services  they  provide,  with  a  third  citing  increased 
community  demand  as  the  reason.  Other  providers,  however,  are  being 
forced  into  financial  deficit  in  order  to  continue  to  provide  the  current  level  of 

"Unless  Increased 
financial  support  Is 
forthcoming,  I  don't 
believe  existing 
resources  can 
addlUortal  demand." 

Ottawa  County 


Wayne  County 

Seventy  percent  of  the  respondents  have  seen  a  change  in  the  characteristics 
of  persons  requesting  assistance  in  the  last  few  years.  An  overwhelming 
two-thinjs  report  sen/ing  more  persons  with  problems  connected  to  their  work 
force  participation,  either  under-employment  (working  poor)  or  unemployment. 
Three  in  ten  cite  a  rise  in  families  seeking  assistance.  Other  frequently 
mentioned  changes  include:  more  young  adults  (14.5%).  more  people 
receiving  public  assistance  (10.2%).  and  an  increase  in  homelessness  (8.5%). 
Relating  to  the  homelessness  question,  a  lack  of  affordable  housing  around 
the  state-particularly  in  rural  areas-was  frequently  mentioned  by  respondents 
as  a  major  cause  of  hardship  in  their  area. 



services,  only  a  quarter  of  them  predict  that  the  community  will  be  able  to  do 
so.  (See  Figure  10.)  Even  more  pessimistic,  only  8  percent  of  those  in  rural 
areas  see  any  possibilities  of  added  community  support  In  certain 
communities,  organizations  are  trying  to  coordinate  efforts  in  an  attempt  to 
meet  expected  additional  demands.  These  groups  of  providers  are  making  it 
quite  dear,  however,  that  this  increased  effort  can  only  be  maintained  for  a 
short  period  of  time,  until  more  long-range  solutions  are  developed. 

Of  those  that  believe  that  the  community  is  not  able  to  expand  support  one- 
half  point  to  a  general  lack  of  community  resources,  cesulting  in  reduced 
private  contributions. 

Another  17  percent  believe  that,  the  demand  for  services  will  outstrip  the 
ability  of  the  community  to  respond,  while  a  small  percentage  feel  that  their 
communities  are  just  not  interested  in  expanding  to  meet  the  need.  Neariy 
one  in  ten  said  expansion  for  ail  emergency  service  providers  will  depend  on 
new  funding  sources,  resulting  in  fierce  competition  for  any  available 
resources  in  the  private  sector. 


Environmental  Factors 

The  League's  survey  of  private  emergency  services  providers  in  Michigan 
cleariy  demonstrates  that  there  is  a  high  level  of  need  for  emergency  services 
and  that  the  private  sector  is  currently  handling  a  large  number  of  requests 
for  such  assistance.  The  survey  also  demonstrates  that  a  growth  in  tiie  need 
for  services  is  coupled  with  a  decline  in  the  resources  available  to  respond  to 
that  need.  It  is  clear  tiiat  most  emergency  services  providers  are  pessimistic 
about  their  ability  in  the  future  to  marshall  the  resources  necessary  to  meet 
additional  demands  for  help  witii  such  basic  needs  as  food  and  shelter.  The 
resulting  pressures  on  private  emergency  services  providers  are  obvious. 
The  causes  of  these  pressures  are  somewhat  more  complex  and  include  the 
following  significant  environmental  factors: 

♦  Changes  In  Michigan's  economy  have  made  It  more  difficult  for 
families  to  support  their  children.  Higher-paying  jobs  in 
manufacturing  and  the  auto  industry  have  disappeared,  and  been 
replaced  by  lower  paying  service  jobs.  The  earnings  of  substantial 
numbers  of  workers  have  not  kept  pace  with  in-flation.  Many  families 
cannot  meet  tiieir  basic  needs  even  tiiough  one  or  more  members  are 
employed,  in  part  due  to  low  wages,  spells  of  unemployment  or 
involuntary  part-time  work.  Nationally,  between  1973  and  1986,  the 
real  median  income  of  young  men  fell  25  percent  with  high  school 
dropouts  experiencing  a  42  percent  decline  and  black  men  a  44 
percent  loss.  The  survey  confirmed  that  a  large  percentage  of 
persons  seeking  emergency  assistance  are  connected  to  the  worit 

♦  Poverty,  and  particularly  child  poverty,  Increased  during  the 
1980s.  The  child  poverty  rate  increased  nationally  by  21  percent  in 
the  last  decade  and  by  53  percent  in  Michigan,  primarily  in  response 
to  economic  and  labor  market  changes  affecting  families.  This  rate  is 
further  exacerbated  by  changes  in  family  sti-ucture.  Marriage  rates  are 
declining,  and  children  are  increasingly  being  raised  in  single-parent 
families,  where  they  are  at  much  greater  risk  of  poverty.  Nationally. 

nMth  the  demand 
for  services  In- 
creasing drama- 
Vcally,  It  Is  Im- 
possible to  expand 
programs  without 
expanding  financial 

Ingham  County 

"Resources  .  shrink- 
concern  contract- 

Washtenaw  County 



•  The  Emergency  Needs  Program  (ENP>  was  reduced  by  (1) 
prohibiting  payments  for  water  and  sewerage  service:  (2)  reducing 
or  eliminating  allowances  for  major  appliances;  (3)  reducing 
payments  for  burials,  and  (4)  reducing  supplemental  shelter 
allowances  for  single  individuals. 

•  Special  emergency  needs  contracts  were  reduced. 

The  Children's  Defense  Fund  (Washington,  D.C.)  estimates  that  the 
declining  effectiveness  of  government  programs  in  pulling  families  out 
of  poverty  accounted  for  42  percent  of  the  increase  in  poverty  rates 
for  families  with  children  between  1979  and  1987.  Our  survey 
confirmed  that-even  prior  to  the  17  percent  reduction  in  AFDC  and 
GA  grants  in  March  of  this  year-certain  agencies  were  experiencing  a 
rise  in  the  number  of  public  assistance  recipients  seeking  help  from 
private  emergency  providers.  Between  1980  and  1991.  the  purchasing 
power  of  the  maximum  AFDC  and  GA  grant  in  Michigan  fell  by 
approximately  28  percent  As  a  result  prior  to  the  March  grant 
reduction,  less  than  one-lhind  of  AFDC  recipients  and  approximately 
one-quarter  of  GA  recipients  received  enough  in  their  shelter  allowance 
to  cover  their  shelter  expenses.  It  is  anticipated  that  the  grant 
reductions  will  jeopardize  the  housing  arrangements  of  many  public 
assistance  recipients,  and  that  homelessness  and  requests  for 
emergency  shelter  will  increase. 

The  Governor  has  recommended  that  the  current  General  Assistance 
and  Job  Start  programs  be  eliminated,  ending  all  income  support  for 
over  98.000  persons  statewide.  If  this  "last  resort"  assistance  program 
for  persons  ineligible  for  other  assistance  is  eliminated,  private 
emergency  services  providers  could  experience  a  substantial  surge  in 

Finally,  the  Governor  has  also  recommended  that  all  special  energy 
assistance  programs  be  eliminated  in  fiscal  year  1992,  and  that  the 
Emergency  Needs  Program  be  modified.  Funds  cun-ently  spent  on 
emergency  needs  would  be  combined  into  an  Emergency  and  Medical 
Needs  Block  Grant  to  the  counties,  with  total  funding  reduced  by 
approximately  70  percent.  The  funds  for  reimbursement  to  private 
agencies  providing  emergency  services  would  be  sut)stantially 
diminished.  Control  over  the  resources  would  be  shifted  to  local 
governments,  which  may  be  sorely  tested  by  the  need  to  both  create 
an  administrative  stnjcture  for  eligibility  determinations  and  manage 
extremely  limited  resources  in  the  face  of  growing  demand. 

Solutions  Not  Readily  Apparent  Nor  Easy 

Given  the  above  environmental  factors  and  what  appears  to  be  a  level  of 
unmet  basic  need  which  is  broad  and  deep  and  affecting  large  numtiers  of 
citizens  in  every  comer  of  the  state,  an  adequate  response  on  the  part  of 
public  and  private  decision  makers  will  be  neither  easy  to  fashion  nor  quick  to 
implement  Taking  the  first  steps  toward  a  solution,  however,  is  critical  to  the 
state's  economic  survival  and  competitive  standing  in  a  rapidly  changing 

"When  it  comes 
down  to  what  Is 
really  needed,  this 
may  be  beyonc 
what  private  groups 
can  do." 

Gr.  Traverse  Count) 



Appendix  A 


For  purposes  of  this  compariscn.  all  providers  in  the  targeted  counties  with  a  1990  Census 
population  of  under  100.000  are  considered  mral;  the  remainder  are  considered  urtian. 

1.  Caseload  Size:  For  obvious  reasons,  the  majority  of  respondent  rural  providers 
serve  smaller  numbers  of  people,  although*  the  average  number  served  per  week  is 
similar  (243  urtjan  vs.  214  mral). 

Number  Served  Weeklv  %  of  Respondents 

Urban  Rural 
<50  37.6  58.1 

2.      Service  Provision:    The  most  frequently  reported  mral  sendee  is  heating/utility 
assistance,  while  in  urban  counties  it  is  food  boxes. 

Type  of  Service  %  of  Respondents 

Providing  the  Service 



Food  Boxes 






Prepared  Meals 



Heating/Utility  Assistance 



Substance  Abuse  Services 



Child  Care 



Mental  Health  Services 



3.      Client  Characteristics:  More  mral  clients  are  employed,  and  enjoy  better  health. 
Relationship  to  Laborforce  %  of  Clients 

Urban  Rural 

Employed  27.1  40.4 

Unemployed  72.9  59.6 

Health  Status 

In  Good  Health  29.9  46.3 

Compromised  Health  54.7  43.2 

Disabled  15.4  10.5 





Targeted  Counties 


Grand  Traverse 
SL  Clair 

Additional  Responses 





7/1  l«lA.rpS<ya3Wjafpkftnl 




An  oveiwhelming  93  percent  of  the  respondents  predict  that  they  will  be  confronted  with  added  requests  for 
assistance  in  the  future,  with  nearly  60  percem  needing  to  jimit  services  even  further  and 
j   wai  be  unabie  to  serve.  Nearly  one^iuarter  also  added  that  the  amount  of  services  ava3able  wiH  dedine  with 
I   increasing  needs,  and  some  predict  they  will  be  forced  to  redeime  their  en^  One  of  the  agencies 

resurveyed  had  dosed. 

I  Despite  the  fact  that  over  half  of  the  respondent  providers  reported  that  they  woukl  be  abte 
I  future  changes,  they  had  resen^'ons  about  this  abiTity.  Of  the  half  that  said  yes.  nearly  30  percent  quaiiiied  this 
answer  by  conditioning  more  assistance  on  increased  donations  or  other  funding  increases;  another  20  percent 
qualified  their  answer  by  adding  they  could  only  cope  with  great  difficulty  or  by  limiting  or  ending  some  services 
temporarily,  if  not  pemianently.  A  few  providers  answered  that  their  ability  to  respond  would  be  dependent  upon 
whether  other  providers  could  pick  up  some  of  their  slack. 

I  Of  all  the  respondents,  nearly  a  thinJ  reported  that  the  time  was  fast  approaching  when  they  would  be  forced  to 
I  redefine  the  functions  of  their  organization:  they  would  have  to  prioritize  and  make  major  programmatic  changes, 

possibly  no  longer  providing  more  costly  services  such  as  shelter  or  transportation,  or  limiting  food  assistance  to 

fewer  times  per  week,  or  per  month. 





■3  TH  OF    August  2551 

repared  by:    Cherry  Stallworth 











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■!•  -erage  Daily  Intakes  **  Average  Daily  Turn -Away  s 


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 — — 

vi c  ti  on  /Landlord 



'y  ction /Friend  or  Family 



'dieted  AFC/Home  for  Aoed 



.'o  Residence /No  Income 



\  ibery 



■rison  Release 



'.  msient  (Out  of  City/State ) 



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h    1  Outs 



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J.  safe  Li  vino  Conditions 









I  ^TED: 

Tntal  #  Of  Substance  Abuse 



"utal  #  Of  Mental  Health  Related 



=? -vised  12/13/90 

Qy/ 16/91 

0  completed 




repared  by:    Cherry  Stallworth 



















28.2     1  22.7 

V  -over 



2        1  1.5 














1  'ERANS 


4Q(N)  +  24(C)=64  serv. 

20  N 


40  N 


<mlE  heads  OF  HOUSEHOLD 





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Med  -  Law  Associates,  p.  c. 
-^^^-^  ^^^^^ 

October  11,  1991 

Representative  David  C.  Hollister 

State  of  Michigan 

House  of  Representatives 

Suite  560  Roosevelt  Building 

Lansing,  Michigan  ' 

Dear  Representative  Hollister: 

We  are  writing  you  because  you  seem  to  be  one  of  the 
few  people  who  understand  the  enormity  of  the  mistake 
Michigan  is  committing  with  respect  to  the  General 
Assistance  recipients  who  have  been  left  with  no  source  of 
income  or  support.     We  have  some  observations  of  this 
situation  which  we  have  not  heard  others  mention  and  would 
like  to  share  them  with  you  for  whatever  value  they  may  be 
in  your  efforts  to  restore  financial  and  medical 
assistance  to  people  who  do  not  have  the  ability  to  care 
for  themselves. 

We  are  lawyers  and  social  workers  who  have  worked  a 
total  of  30  years  within  the  Department  of  Social  Services 
and  with  General  Assistance  recipients.     A  significant 
portion  of  our  work  now  consists  of  representing  clients 
in  their  efforts  to  qualify  for  Medicaid.       This  service 
is  sponsored  by  hospitals  which  have  cared  for  indigent 
patients  without  compensation. 

Over  the  past  2-1/2  years  our  organization  has  worked 
with  well  over  a  thousand  clients.  Approximately 
two-thirds  were  so-called  able  bodied  GA  recipients. 
To  date  more  than  fifty  percent  of  these  people  have 
qualified  for  Medicaid  for  the  disabled.  Approximately 
one-third  qualified  based  on  a  mental  impairment. 

These  findings  comport  with  the  experiences  of  one  of  » 
the  undersigned,  while  she  was  a  Client  Advocate  within 
the  Department  of  Social  Services.     In  that  job,  she 
conducted  a  pilot  study  at  the  Ingheun  County  Department  of 
Social  Services.     In  that  pilot,  so  called  "able  bodied" 
GA  recipients  (non-Medicaid)  were  selected  for  evaluation 
after  they  tried  unsuccessfully  to  qualify  for 
Supplemental  Security  Income  (SSI)  through  the  Social 
Security  Administration.       Once  these  clients'  impairments 
were  properly  documented,  approximately  eighty  percent 
were  found  to  be  disabled. 


This  pilot  (and  a  similar  study  performed  in  Kent 
County  by  Gary  van't  Hul,  an  administrator  there)  led  to  a 
statewide  "GA  Initiative",  as  it  was  called,  to  identify 
disabled  people  among  the  GA  population.    These  people 
were  to  be  identified  through  a  survey  form  completed  bjr 
each  worker  at  time  of  case  opening  or  case  review.  In 
the  few  counties  where  the  initiative  was  taken  seriously, 
the  results  were  dramatic.    Many  disabled  people  were 
identified,  qualified  for  Medicaid  and  then  for  SSI.  The 
results  were  impossible  to  refute;  there  were  large 
numbers  of  disabled  people  on  General  Assistance. 

In  our  current  work,  we  have  had  an  opportunity  to 
take  a  very  close  look  at  large  numbers  of  GA  recipients 
and  at  the  DSS  process.      What  we  have  found  has  led  to 
the  inescapable  conclusion  that  the  course  now  being  taken 
with  these  people  is  wrong  and  is  bound  for  disaster. 
This  conclusion  is  based  on  our  observations  that  large 
numbers  of  them  are  not  only  incapable  of  self-support, 
but  are  incapable  of  demonstrating  their  eligibility  for 

What  we  see  is  that  many  people  have  been 
characterized  as  able  bodied  by  default.     This  has 
occurred  for  several  reasons.     First,  these  people  have 
not  had  the  wherewithal  to  leap  through  the  challenging 
hoops  which  DSS  sets  up  for  anyone  who  tries  to  qualify 
for  Medicaid.     Second,  they  may  not  have  even  attempted  to 
obtain  Medicaid  because  they  didn't  know  they  were 
disabled.     This  is  often  the  case  with  people  who  are 
mentally  impaired.     It  is  our  impression  that  the  most 
severely  mentally  impaired  can  seldom  negotiate  the  system 
well  enough  to  qualify  for  Medicaid. 

The  barriers  to  Medicaid  are  significant.     A  few  of 
them  are  as  follows: 

1.  We  have  frequently  been  told  by  clients  that  a  DSS 
worker  told  them  they  were  not  eligible  for  Medicaid  and 
thus  discouraged  filing. 

2.  The  application  form  is  28  pages.     It  is  daunting  to 
someone  with  minimal  education.     It  is  sometimes  confusing 
even  to  us  —  and  one  of  us  helped  design  it. 


3.    The  verification  requirements  are  often 
insurmountable.      We  have  attached  several  actual 
verification  check  lists  which  were  sent  to  Medicaid 
applicants.    Claimants  are  given  10  days  to  procure  all 
the  items,  many  of  which  are  unavailable  to  them.    We  have 
seen  many  workers  check  off  every  box  and  then  deny  people 
for  not  returning  the  verifications  requested,  even  those 
which  were  not  appropriate.  It  is  an  easy  way  for  an 
overburdened  worker  to  reduce  the  workload.  " 

Verifying  the  presence  of  a  disabling  condition  is  a 
special  problem.    The  DSS  Manual  directs  that,  when 
needed,  the  worker  is  to  assist  client  with  scheduling  a 
■edical  examination  appointment,  paying  for  medical 
evidence  and/or  medical  transportation.   (PAM  Item  815, 
page  5),  but  in  reality  the  workers  do  not  have  time  to  do 
this.      The  clients  are  merely  given  the  forms  to  take  to 
the  doctor.    These  people  don't  have  doctors  who  will  fill 
out  the  required  forms  given  to  the  client  by  DSS.  Even 
vten  the  client  has  a  doctor  and  gives  the  doctor  the 
forms  to  complete,  they  are  seldom  returned  to  DSS  within 
the  10  day  limit.     This  factor,  which  was  completely 
beyond  the  client's  control,  results  in  the  Medicaid 
^plication  being  denied  for  failure  to  supply  information 
even  though  it  was  not  possible  for  the  client  to 
personally  provide  it. 

As  you  can  see,  the  DSS  system  is  extremely  complex. 
Its  complexities  overwhelm  many  disabled  clients  so  that 
they  never  become  entitled  to  programs  which  would 
identify  them  as  people  who  should  be  placed  in  a 
protected  class. 

We  are  well  aware  that  changes  in  the  General 
assistance  program  were  needed.      But  these  changes  should 
lave  been  made  with  consideration  of  the  condition  of  the 
people  being  affected. 

The  new  SDA  program  which  was  contrived  to  fill  the 
gap  left  when  GA  ended,  will  not  help  the  people  we  have 
fescribed.     To  qualify  medically  for  SDA,  one  must  be 
incapable  of  performing  "any  remunerative  work" .     I  have 
been  personally  told  by  people  within  the  Medicaid  program 
that  the  word  from  Mr.  Miller  is  that  people  who  are 
capable  of  even  $1.00  an  hour  babysitting  will  be 
ineligible.     This  standard  is  far  more  severe  than  the 


,4^nt's  ability  to  perform 
Medicaid  standard  where  the  c-*^*?" criterion, 
"substantial  gainful  activity"  is  ^" 

0  ««veral  "able  bodied" 
I  aa  attacMng  «Jtetcb«s  of  ^^-e  only  pending 

former  CA  r«cipi«ts.    Tti«»e  P*fEiTeation  and  provided  the 

t'^?*?ir*??  *•  IHOf  «^P^  tine  to  obtain 

would  be  helpful,  liS^ure  it  could  be  provided. 

If  there  is  anytning  else  we  can  do  to  support  your 
efforts,  please  call- 

Sincerely , 

Ellen  M.  Hart  Marsha  E.  Wood 

Attorney  at  Law  Attorney  at  Law 

P.S.     We  are  puzzling  over  a  DSS  Program  Policy  Bulletin, 
Numl^er  91-8,  which  we  received  yesterday.     it  refers  to 
continuing  medical  coverage  for  GA  recipients,  but  we  know 
fron  the  dozens  of  telephone  calls  we  have  received  that 
there  is  no  medical  coverage  for  these  peoole  at  this 
t:i»e.     A  copy  of  PPB  91-8  is  attached. 







(M.D./D.O. ) 

All  services 
(No  copayment) 

Most  ($2.00 
copayment ) 

Limited  ($2.00 


Drug  formulary 
($.50  copayment) 

Drug  formulary 


Drug  formulary 








No  -'vi^^ 






Medical  supplies 


Most,  excluding 
those  needing  PA 




transport  to  ER 







Yes  ** 











Family  Planning 




Home  Health 




Durable  medical 










•     The  GA  Medical  Program  also  describes  the  Wayne  County  CountyCare  Program.    In  addition, 
CountyCare  includes  inpatient  hospital  care. 

*"  The  CountyCare  Program  includes  a  capitated  dental  coverage.    The  GA  Medical  Prograa  was  a 
fee-for-service  dental  coverage. 



Prepared  by  Office  of  Rep.  David  Hollister  (D)  Lansing,  Chair 
Michigan  House  Social  Services  Appropriations  S-iiico=ittee 

GA  AXD  JOB  START  PACT  SE22T  1/11/91 

What  Ara  C^^aral  Aaal-t^wngg  and  Job  Srart? 

General  Asslstajica  (GA)  is  a  cash  asaist^c*  prograa  for  lov-incoa* 
parsons  vit^  lua  t^an  $250  in  assacs. 

GA  racipients  are  not  eligible  for  ATDC  because  they  do  not  have 
childran  or  else  do  not  meet  federal  recfairaaents  for  AJ^C-  - 
Unaaployed  because  of  insufficient  prior  work  experience. 

GA  recipients  are  not  eligible  for  SMppleaental  Security  lacone 
(SSI)  either  because  they  do  not  aeet  the  age  criteria,  are  not 
blind,  or  have  not  been  determined  to  be  disabled.  Marty  recipients 
do  apply  for  SSI  disability  ar.d  are  eventually  found  to  b« 
eli9ible.  The  state  is  reixbursed  by  the  Federal  govamxest  for 
General  Assistance  pxaysents  sade  to  such  persor^  vhile  they  vera 
avaiting  SSI  eligibility  deteraination. 

The  average  aoathly  GA  cash  benefit  in  FY  19  8  9-90  vas  $217  for 
cases  vithout  children  ar.d  $4  58  for  cases  with  children.  GA 
recipients  are  also  eligible  for  the  General  Assistance  Medical  and 
Resident  County  Kcspitalizaticn  program.  In  sany  counties,  the 
aedical  coverage  does  not  include  hospitalization. 

Persons  aged  18-25  who  reet  General  Assistance  eligibility 
requireaents  in  six  counties  (Genesee,  Inghas,  Kalanaroo,  ]<us)cegon, 
Oakland,  a.-.d  Wayr.e)  are  required  to  participate  in  the  Job  Start 
prograa,  a  aancatory  e=plc>'rent  and  training  prcgran  initiated  on 
a  pilot  basis  in  FY  1539-90.  Participants  receive  training 
allowances  averaging  S196  a  ncnth  vhile  participating  in  education 
and  training  activities,  but  are  not  eligible  for  General  if  they  do  not  participate. 

Who  Are  general  Assistance  Recipients  and  rhere  Do  Thev  Liv? 

S^X  ?f  HgVgS^?:^  Race  cf  Hcusehcld  Head  Ace  of  Household  Head 

Male               57*                         White         52%                        21  t  Under  9* 

Feaale           43%                        Black         44%                       22-40  57% 

Other            4%                          41-54  23% 

55  6  Over  11% 

Over  2  0%  of  General  Assistance  recipients  are  children.  Figures 
for  October,  19  9  0  for  the  state  and  selected  counties  are: 












62, 354 






15,  294 














,  618 








.  464 

















Roughly  half  of  the  General  Asaistanca  population  resides  in  Wayne 
County.  However,  Wayne  County's  portion  of  the  total  state 
caseload  has  declined  by  14%  since  1981. 

Caseloads  have  increased  substantially  over  the  last  year,  with  the 
greatest  increases  in  cutstate  counties.  Data  for  the  counties 
with  the  largest  November,  1989  and  1990  caseloads  are  attached. 


Ta  Vhrnn  gTrt.nt;  Ar>  C^nm-rul  >^«iMtanea  B«etpl«nt»  EBPlQVabl«? 

in  addition  to  physical  and  aancal  capabilltiaa,  th«  kays  to 
aaploymbility  ajra  educational  laval  asd  aaployaant  a3cp«ri«nc«.  Tho 
•dneatioa  aad  aoaployMnt  axp«rianca  lavala  for  Canaral  Aaaiatanc* 
raciplanta  ia  mM  follova: 

  gdueatlon   gaTalovrngnt;  -^^romri  mr,^^  

Laaa  than  Bigh  School  Oiploaa        49%  61%  hava  no  hiatory  oC  aaploymant 

High  School  Diplo&a  41%  6«%  hava  not  vorkad  in  tb«  last 

fiva  yaars 

Sena  Collaga  10% 

Only  15%  of  all  Canaral  Assistanca  raeipiants  aaat  tha  Armad  Forces 
racrtiitiBg  criteria.  ^ 

Another  Kay  factor  in  dataraining  aligibility  ia  the  availability 
of  jobs  in  reeeoneble  proxiaity  to  vhare  recipients  live: 

•  The  clear  end  powerful  relationship  between  General  Aasiefance 
caseloads  and  mMsployaant  rataa  ia  veil  known.  General  Asslstane* 
caaeloads  are  Bsaelly  the  highest  in  counties  and  cities  with  tbm 
highest  uneaployment  rates.  For  example,  there  are  already  large 
nuBbers  of  applicants  for  each  available  job  opening  in  Detroit  and 
many  other  areu  with  large  numbers  of  raeipiants. 

*  To  the  extent  that  \inaaployment  rates  are  high.  General 
Assistance  recipients  who  are  successful  in  finding  jobs  aay  simply 
displace  other  vorkers  with  marginal  skills. 

There  have  been  several  studies  of  General  Assisrance  recipients  in 
Michigan  ever  the  past  several  years.  All  have  emphasized  the 
importanee  of  education  and  training  in  making  recipients 

The  apparent  villingness  of  CA  recipients  to  participate  in 
education  and  training  activities  has  been  demonstrated  by  Job 
Start.  Tha  op-out  and  sanction  rates  have  been  lower  than 
anticipated  Ir.  this  program,  and  participation  rares  have  been 
higher  than  bv:dg«ted.  Over  11,000  18-25  year  olds  now  are 
receiving  educacien  and  training  in  the  Job  Start  coxmties. 

NOVXKBUl  1989  -  KOVXKBZR  1990 


MOV  ^9 

NOV  90 

MOV  19-MOV  90 












•  .9% 



















a,  79ft 



















101. •13 

•  .4% 

•  .9% 

58-688  0-92-7 


General  Assistance  Adult  pro9r«ii 

Jok  Skint 

J4  n 

l«tt  Fi«t  Tttrt  It  Jo* 


lev  SkiH  ■■ 

),»«  ikiii 

71  n 

••4  Skill  (retii) 

KC4  Sk>n 

•  itlM 


•  tUil 

11  It 

flCtOr;  work 


r^eiory  work 

f094  $«r*iet 

roo4  $tr«ici 



9. St 


14.  *» 

Iwllliif  Stfiict 

13.  it 

Icplir  and  It4|  S«r 


Cr>\U  Cl'l 


CMltf  Ciri 

4?  It 




Mifh  Skin 

4  3« 

Mlfh  Skill 


Cwrtftf  im  flM  Ttkft  Pwrtftj  Hit  f l<t  r«»rt  ltc«»lwtl  CayltyH  Owfliio  latt 

ty  /m                                  C^ycittan  tt^fl  f«M  la>r»  >y  l»cni><i  awd  lace 

•  «  «.»  uo^t  /  SU  -    J2.7t  *-WF  • 

•  30  SS.It  «th  -  tth  2f  St  Cowwtm  VajBt 
-  40  9th    -  lltft  WhUt           tl.U  THi 

•  S4  S!.4t  \2t>  Sl.2t  lUck            41. II           31. ]t 

•  «4  31.4t  Sm  Celltit  ;3.1t  Other           sO.Ot  «S.St 


Marital  Statwi 

0<»ore?3  24.31 

Ka-rua  10.41 
KtTir  mrrlH  «|  tl 

Stparittd  11  4% 

Vido«t4  $.21 

Cduotlon  Letil 

Nona  *  atn  4.41 

6th   •  Itn  9  81 

9th    'llth  34  41 

12th  41.31 

Scat  CoHcit  10.41 


•    l.€t  w«rt  e«pley«d. 

«  had  no  hittory  of  «apleystAt.    Tht  aijerity  indie«t«d  thty  h«v«  itet  b««A 
•Mploycd  during  tht  last  five  yoaci. 

SAM ! ens  TO  sgtf'SorrtciPicT 

«    20%  raquirad  cart  for  dls«blad  adulta  in  thair  heusthold  for  thts  to  work. 
^    22.2%  had  aoM  fees  of  physical  lisltatioA 

•  21. f%  had  no  aectti  la  transportation.    32.7%  had  a  privata  vthlelo.    31. S%  had 
acetaa  to  pgblle  tranapertatlen. 

•  S.1%  Indieatad'thoy  had  aarlous  sanial  lllnassas. 

•  Indieatad  they  hava  rtcaivtd  substanea  abust  tctatntnt. 

•  11.2%  of  all  GA  eaeipitnts  had  at  laast  ona  of  thi  following  barriers  hindaring 
thalr  ability  to  worki 

Physical  liaitation  Lack  of  transportation 

Mental  health  prebleas  Criainal  record 

Subatance  abusi  problaoa  Lack  of  adueation 

lew  ieb  ekins  -#  -..w  


United  States  General  Accounting  Office 

Report  to  the'Cliairman,  Committee  on 
Finance,  U.S.  Senate 


Coverage  Improves 
but  State  Fiscal 
Problems  Jeopardize 
Continued  Progress 


(  hapter 't 

States  Responsive  to  InitiativM  TarRetins 
Luw-lncome  Women  and  Children 

Table  2.2:  Average  Annual  Percentage 
Growth  Rates  for  Population.  Medicaid 
Recipients,  and  Expenditures  (1984-89) 

Population/  recipients/ 

Total  pODuiation 

'/edicaid  recioienis 

AFDC  Medicaia  recioients 

ledicaia  exoenditures 

VFDC  Medicaid  exoendiiures 

These  f»rowth  rates  signify  that  the  quartile  that  was  most  in  need  of 
improvement  consistently  ser\'ed  more  afdc  as  well  as  total  recipients 
rhrough  Medicaid  in  1989  thzm  in  1984.  The  opposite  trend  is  observable 
in  states  that  in  1984  generally  had  the  most  comprehensive  Medicaid 
programs  in  terms  of  eligibility  and  resources  expended.  For  this  quar- 
tile. AKDC  recipients  declined  in  absolute  terms  as  well  as  relative  to  an 
essentially  stable  total,  as  shown  in  table  2.3. 

Table  2.3:  AFOC  Recipients  as  a 
Percentage  of  Total  Medicaid  Recipients 

F-scai  Vear  i984-89> 

Fiscal  year 

Most  limited  L 

east  limited 




-2  9% 

71  6% 




71  4 



-1  5 

71  1 



-0  3 


■  j38 

54  1 

-0  2 

■  ^89 

^5  3 

-~j  4 


Expanded  Services  to 
Women  and  Children 
Not  Primary  to  Rise  in 

In  general,  the  states  do  not  perceive  expansions  targeting  pregnant 
women  and  children  as  the  primar\'  factor  in  rising  .Medicaid  expendi- 
tures. The  states  recognize  the  potential  benefits  of  such  expansions. 
\  iewing  prenatal  and  child  care  as  a  worthwhile  social  goal.  In  many 
instances,  prenatal  care  serv'ices  were  already  provided,  using  state  and 
local  funds,  so  savings  resulted  when  the  new  legislation  authorized  a 
federal  match.  .Moreover,  the  health  care  needs  of  these  groups  are  rela- 
tively predictable  and  cost-effective.  There  is  evidence  of  both  short- 
;ind\long-term  savings  in  health  care  costs  from  the  provision  of 
prenWal  and  preventive  medical  benefits.' 

.\n  Institute  "I  Medicine  study — Preventine  l.ii)W  Hinhweight  i  Washincion.  U.C  .  Nidional  .\cademy 
IVpss:  1II8.T  1 — r  cpoired  .S:5.38  savines  lor  even-  ■<  1  t-xpended  on  prenatal  i  are  .Also,  each  dollar  spent 
■n  childhoon  immunizations  hiLs  been  shown  rn  save  more  than  ■>  ID 

Page  2fi 

(;A0/HRD-91-78  Medicaid  Expands:  Fiscal  Problems  Moont 


Chapter  2 

States  Kesponsive  to  Initiatives  Tan<etinR 
Low-Income  Women  and  Children 

As  the  results  of  our  study  confirmed,  relative  to  other  groups  these 
recipients  did  not  cause  major  cost  increases  during  the  1984-89  period. 
Children  are  the  least  costly  of  all  Medicaid  recipients:  their  per  capita 
expenditures  for  medical  services  in  fiscal  year  1989  were  S699.  Even 
the  larger  category  of  afdc  recipients,  while  costing  more  per  capita  in 
1989  than  in  1984.  still  constitutes  a  relatively  inexpensive  group  to 
serve.  For  afdc  recipients  as  a  whole.  1989  per  capita  Medicaid  expendi- 
tures were  S867.  compared  with  an  average  $2,318  overall.  They  con- 
sume a  much  smaller  percentage  of  Medicaid  expenditures  than  would 
be  accounted  for  by  their  proportion  of  the  .Medicaid  population  ( see 
fig.  2.n. 

Nationwide,  afdc  recipients  accounted  for  less  than  one-third  of  the 
growth  in  .Medicaid  expenditures  between  1984  and  1989.  as  shown  in 

Page  27 

(JAO/HRD-91-78  Medicaid  Expands:  Fiscal  Problems  Moiuii 


(  hapter  2 

Sutes  Responsive  to  Initiatives  TanietinR 
Low-income  Women  and  Children 

table  2.4.'^  The  elderly  and  disabled  population  generally  is  more  expen- 
sive to  serve  and  has  grown  at  a  faster  rate.  Between  1984  and  1989. 
this  segment  grew  from  24  to  27  percent  of  Medicaid  recipients  and  in 
1989  accounted  for  73  percent  of  the  expenditures. 

Table  2.4:  Expenditure  Growth 
Attributable  to  AFOC  Recipients 

-^scai  fear  1984-89) 

Fiscal  year 

AFDC  increase  as  percent  of  total 
increase  in  Medicaid  provider  payments 





■  986-87 





54  5 



Also  serv  ing  to  minimize  the  cost  to  the  states  of  expansions  for  preg- 
nant women  and  children  is  the  fact  that,  in  many  instances,  prenatal 
care  and  related  services  already  were  provided,  either  under  previous 
.Medicaid  options  or  using  state  and  local  funds.  A  1989  study  found  that 
43  states  had  implemented  1984-89  expansions  targeting  pregnant 
women  and  children.''  Of  these.  17  financed  the  expansions  in  whole  or 
in  pait  by  transferring  state  funds  from  their  public  health /maternal 
and  child  health  budgets  to  their  .Medicaid  budgets."  The  states  have  a 
dear— and  acknowledged — incentive  to  maximize  federal  matching 
lunds  by  means  of  such  transfers,  but  we  have  been  unable  to  document 
the  dollar  amount  involved  nationwide. ' 

'IIowpvtT.  the  increase  a-ssociateiTwith  thi.s  group  wa.s  sliahtly  liither  th;in  ime-third  iif  the  total 
.;i-owth  for  1988-89. 

Kiix  Health  Policy  t'onsultant-S  Inc..  .State  Strategies  mr  Kinancing  .MtHlicaid  K.<pan.sioas  to  .Meet  the 
Ni'eds  oi'  Children  and  Pregnant  Women.  .Aug.  IH89 

'  Mir  cxst-  study  states  differed  in  this  regard.  .Maine  niaae  such  a  ii  anstcr.  while  Smth  Carolina  did 

"states  generally  employed  a  combination  ol  funding  approaches  for  these  expaasions.  Thirty-three 
-tales  used  new  appropriations,  in  coniunction  with  transfers  between  programs.  a.s  part  fif  their 
!imding  mechanism. 

Page  28 

GAO/HRI>-91-'8  Medicaid  Expands:  Fiscal  Protriema  Motuit 


hliij  y 

Mr.  K. .  age  46. 

Mr.  K.  suffers  with  Colo-rectal  cancer  with  bony  destruction 
of  the  sacrum  and  coccyx  on  the  right  side  resulting  in 
surgery  with  a  colostomy  3  months  ago.    He  is  now  undergoing 

Mr.  K.  is  functionally  illiterate,  and  has  always  been  a 

His  Medicaid  application  has  been  pending  since  8/30/91. 
His  GA  and  GA-Medical  have  been  terminated. 

KT^  P-»  age  32. 

Mr.  B.  was  hospitalized  with  a  collapsed  lung  and  pneumonia 
in  June,  1991.    In  addition,  he  suffers  from  a  seizure 
disorder  which  is  not  controlled  by  medication. 

He  requires  heavy  doses  of  antiseizure  medications  daily. 

Mr.  B.  does  not  drive  due  to  recurring  seizures  and  has  a 
slow  reflex  response  due  to  medication. 

His  Medicaid  application  has  been  pending  since  July  1991. 
His  GA  and  GA-Medical  have  been  terminated. 

Mrs,  p..  age  60. 

Mrs.  P.  was  hospitalized  in  March  1991,  for  chest  pain.  She 
is  an  insulin  dependent  diabetic  who  also  suffers  from  high 
blood  pressure,  severe  arthritis,  and  reflux  disease. 

Mrs.  P.  does  not  read,  write,  or  speak  English,  nor  does  she 
read  or  write  Spanish.     She  only  speaks  Spanish.     She  never 
went  to  school  and  never  worked  outside  the  home. 

Her  Medicaid  application  has  been  pending  since  5/6/91. 
Her  GA  and  GA-Medical  have  been  terminated. 

Mr.  A. .  age  49. 

Mr.  A.  was  hospitalized  in  June,  1991,  for  cancer  in  his 
left  kidney  resulting  in  surgery  to  remove  the  tumor  and  his 
spleen,  followed  by  pneumonia.     In  addition,  he  is  an 
insulin  dependent  diabetic  and  has  high  blood  pressure. 

He  has  had  back  problems  since  a  severe  fall  at  age  18.  He 
now  has  difficulty  standing  after  he's  been  sitting  for 

He  has  been  on  antibiotics  for  recurring  lung  infections 
since  his  surgery.     Mr.  A»s  regular  physician  is  refusing  to 
see  him  because  he  does  not  have  Medicaid  coverage. 

He  has  a  lOth  grade  education  and  has  always  done  farm  work 
or  trash  routes. 


MS.  M..  age  43. 

Ms.  M.  has  had  frequent  hospitalizations  and  emergency  room 
admissions  for  complications  related  to  her  insulin 
dependent  diabetes  of  many  yeaurs. 

She  has  constant  nxmbness  in  her  hands  and  feet;  her  feet 
are  classic  diabetic  neuropathy  changes,  as  are  her  hands. 
Her  feet  swell  and  she  has  problems  buttoning  her  clothes 
and  holding  items  in  her  hands. 

She  has  had  chronic  diaurrhea  for  nine  years,  and  has 
episodes  of  blurred  vision,  both  complications  of  her 
diabetes.    She  has  a  9th  grade  education. 

Her  Medicaid  application  has  been  pending  for  20  months.  We 
are  now  awaiting  a  decision  from  the  Biireau  of 
Administrative  Hearings.    Her  GA  and  GA-Medical  have  b&en 

Mr.  J.  A.,  age  56 

Mr.  J.  A.  is  a  resident  of  an  Adult  Foster  Care  Home 
following  surgery  to  replace  a  heart  valve.    He  suffered 
fainting  spells  following  the  surgery  and  was  no  longer  able 
to  care  for  himself. 

Mr.  J.  A.  has  severe  emphysema,  he  requires  heart 
medications,  blood  thinning  drugs,  and  continued  treatment 
for  both  his  heart  and  his  emphysema.    He  is  currently  out 
of  medications. 

His  application  for  Medical  Assistance  was  filed  5/21/91 
and  is  still  pending.     We  understand  that  his  GA  was 
terminated  despite  the  fact  that  he  is  a  resident  of  an 
Adult  Foster  Care  Home. 

Mr.  J.  B..  age  55 

Mr.  J.  B.  was  hospitalized  in  July  and  August  1991  for  chest 
pain  which  was  diagnosed  as  unstable  angina.     He  also  has 
diabetes  and  a  possible  malignancy. 

He  requires  three  prescription  drugs  for  his  heart  and  one 
for  his  diabetes.     His  application  for  medical  assistance  is 
pending.    Mr.  J.  B.  's  GA  has  been  terminated. 


"More  face  evictions  after  cutoff," 
Lansing  State  Journal. 
Fri.,  Nov.   1,  1991,   at  lA. 

More  face 
after  cutoff 

Staff  and  Wire  Reports 

Housing  advocates  are  expecting  a  (lood 
of  evictions  now  that  a  month  has  passed 
since  welfare  benefits  were  cut  off  to  able- 
bodied  adults. 

In  Lansing,  agencies  that  work  with  the 
homeless  are  seeing  double  or  more  their 
usual  caseloads. 

■  The  Community  Service  and  Referral 
Center  is  helping  5u  households  whose  oc- 
cupanis  are  facing  eviction  —  up  from  :i 
typuMl  nionlh  of  five  or  six. 

■  Ai  Hurvest  House-Lansing Street  Mm- 
i:>;ry  on  Michigan  Avenue,  25  to  30  people 
have  been  showing  up  for  daily  menls  and 
religious  services,  muking  Octobfr  its 
busiest  month  in  three  years. 

■  Leual  Services  of  Ceniral  MtrhiKaii 
has  many  calls  from  rn-npif  wiin  w:ini  hrlp 
fiChiin^  eviction. 

Uul  those  who  simply  clun'i  li;ivir  ilic 
money  ran  t  be  helped,  said  director  Dmuk 
Slade.  "They're  automnticnity  Koini;  n» 
lose  when  tnuy  go  to  court.  An  aliorncy'.s 
presence  at  a  hearing  won't  make  a  bit  of 

Shirley  Johas  at  the  referral  center  said 
she's  urging  clients  to  go  through  the  en- 
tire eviction  process  —  right  down  to  a 
police  officer  arriving  to  give  them  a 
choice  of  leaving  or  beinK  arrested  for 
trespassing.  That  can  take  as  lonit  ii-s  .10 
days,  Slade  said. 

Johns  hopes  courts  will  be  backlogged 
with  evictions,  giving  tenants  more  time. 

"The  longer  we  can  keep  somebody  in  u 
home,  the  greater  the  chances  are  of  nui 
freezing."  she  said. 

Not  all  those  being  evicted  are  people 
who  lost  general  assisunce  money  when 
the  program  ended  Oct  1:  some  are  'peo- 
ple whose  Aid  to  Families  with  Dependent 
Children  grants  were  cut;  others  have  had 
cuts  in  Social  Security. 

At  Harvest  Home,  the  Rev.  Marcellus 
Love  said  his  staff  can't  keep  up  with  de- 
mand. And  more  of  those  on  the  streets  are 
mothers  with  children,  who  need  shelter, 
food,  clothing  and  diapers  for  Infants —an 
Item  he  can't  keep  In  stock. 

"Donations  are  down.  It's  tight  to  per- 
form our  full  service."  Love  said. 

In  Detroit,  about  S.OOO  former  general 
assistance  recipients  are  being  spared 
eviction  from  their  downtown  hotels  while 
landlords  wail  for  a  state  appeals  court  to 
rule  on  the  end  of  general  assistance. 

The  hotel  ownen  are  waiting  unUI  at  leasi 
Tuesday  to  see  If  the  appeals  coun  will  allow 
benefits  to  be  reinstated  to  the  82.6H  child- 
less adults  who  lost  benefits  Oct  I. 

An  Ingham  County  Circuit  Court  lost 
month  ruled  against  (he  state  and  ordered 
the  benefits  restored,  saying  the  state  had  aol 
prepared  adequately  for  the  shutoff. 

The  appeals  court  (ficn  granted  a  tty  of 
thai  ruling  until  me  stale's  appeal  If  decided. 


Schabath,  G., 

"Food  program  seeks  support  as  more  go  hungry  in  Macomb,' 
The  Detroit  News.  Wed.,  Oct.  22,   1991,  at  5B. 

Food  program  seeks 
support  as  more  go 
hmigry  in  Macomb 

— -^^^  Smith  said  it  becune  eridcot 

By  G«n*  Sehabath  'wwift7«  ^  that  Macomb  was  foinf 

THE  DETROIT  NEWS  to  have  Some  faaid  times  feeding  its 

Officials  from  the  Macomb  Coim-  -^""^^^j^'^  Aur«t.  Smith 
t'^^I^^.^J^'^l^^.  «id3Pr  forT«i  came 

I  her  desk  alone. 

for  food  and  cash  donatioBS  in  the 
waJce  of  a  dramatic  increase  in  the 
number  of  hungry  in  the  county.  — —  . 

The  food  program  fed  about  2.000  ■  ForiBferBatiea.todoaatottrto 
needy  families  last  year,  but  county 
officials  expect  that  number  to  at 
least  double  this  year  because  of 
rising  unemployment  and  cutbacks 
in  pjvemment  assistince  programs,  | 
said  Melanie  Chiodini,  communica-  j 
tioM  specialist  for  the  Macomb  Food 

*It  is  just  rough  oat  there  because 
of  the  (stau)  budget  cuts.'  Chiodini 
said.  "We  are  finding  that  people  are 
poorer  than  ever  before.  We  hava 
three  action  centers,  and  they  are 
just  being  inundated  «dth  people 
coming  in  asking  for  help.' 

Chiodini  said  organizations  and 
office  workers  are  urged  to  create 
holiday  food  drive  programs  as  a 
means  to  not  only  feed  the  hungry 
but  also  to  make  people  aware  of  the 
growing  problem  of  hunger  in  Ma> 

Chiodini  said  organiiatioos  and 
offices  that  cannot  afford  cash  dona- 
tions  can  participate  by  urging  mam> 
ben  to  contribute  nonperiahaUe 
food  items.  Individuals  also  can 
make  donations,  she  said. 

The  Macomb  Food  Program  oper- 
ates 45  pantries  in  the  county.  Per- 
sons and  families  in  emergency  food 
situations  are  referred  to  one  of  the 
pantries  for  food  subsidies.  Clients 
can  get  subsidies  a  lot  easier  than 
they  can  in  other  government  food 
programs,  which  have  stricter  guide- 

'People  who  generally  fall 
through  the  cracks  can  qualify  under 
our  program.*  Chiodini  said. 

Under  normal  conditions,  the 
pantries  are  used  to  feed  the  needy  in 
emergencies,  but  the  recent  tough 
economic  times  has  created  a  steady 
stream  of  families  and  individuals  in 
consunt  need.  ofTiciab  said. 

'It's  a  Krave  situation.'  said  Edna 
Smith,  coordinator  of  the  program 
and  the  only  paid  county  worker 




I,  Jane  Doe,  under  penalty  of  perjury,  say: 

1.  I  live  with  lay  three  children,  ages  one,  two  and  four  in 
a  rented  home  in  Detroit. 

2.  I  have  lived  at  this  address  for  the  past  three  years. 

3.  My  rent  is  §250.00  per  month  and  does  not  include  heat, 
electricity  or  water. 

4.  The  sole  source  of  income  for  myself  and  my  three 
children  is  through  Aid  to  Families  with  Dependant  Children  (AFDC) . 

5.  My  rent,  electricity  and  gas  payments  are  directly 
vendored  by  the  Department  of  Social  Services. 

6.  After  these  payments  are  deducted,  I  am  receiving  a  cash 
grant  for  the  month  of  May  in  the  amount  of  $44.00  every  two  weelcs. 

7.  This  is  a  reduction  from  my  March  and  April  grant  amounts 
which  were  $55.00  every  two  weeks.  * 

8.  Prior  to  the  grant  reduction  in  March,  I  received  $125.00 
every  two  weeks,  after  the  rent  and  utilities  were  vendored^  - 

9.  I  do  not  have  a  phone  or  a  car.  I  have  been  struggling 
to  survive  since  March. 

10.  Two  weeks  ago  my  water  was  shut-off. 

11.  When  I  contacted  the  Detroit  Water  Board,  I  was  told  that 
the  water  bill  was  approximately  $400.00  and  that  I  would  have  to 
pay  that  amount  plus  a  SIO.OO  service  charge  before  the  water 
services  could  be  restored.  The  Water  Board  would  not  agree  to 
accept  a  payment  plan. 

-  1  - 


12.  There  is  no  way  I  can  afford  to  pay  this  anount  out  of  ziy 
current  Bonthly  cash  assistance  grant. 

13.  I  went  to  the  Department  of  Social  Services  for  emergency 
assistance  and  was  informed  that  the  Department  no  longer  pays 
these  bills. 

14.  I  called  ny  landlord  and  asked  him  if  he  would  pay  the 
bill  so  that  I  could  pay  him  over  time,  but  he  said  that  payment 
for  water  was  my  responsibility  and  refused  to  pay  the  bill. 

15.  Since  then,  I  have  been  referred  to  a  number  of  social 
service  agencies,  none  of  which  were  able  to  help  me. 

16.  I  went  to  the  Neighborhood  Services  Department  for  the 
City  of  Detroit  on  Six  Mile  Road  and  Hubbard  and  was  told  that 
there  was  nothing  they  could  do  to  help  me. 

17.  I  called  the  Mayor's  hotline  and  was  told  the  same  thing; 
they  could  not  help  ne. 

18.  I  contacted  the  Salvation  Army.  THey  were  not  able  to 
help  and  warned  me  that  if  I  was  not  able  to  get  the  water  turned 
back  on,  I  could  lose  my  children. 

19.  I  called  the  St.  Vincent  DePaul  Society  but  they  had  run 
out  of  money  and  could  not  help  me. 

20.  I  called  Catholic  Social  Services  and  they  could  not 
assist  me. 

21.  No  one  has  been  able  to  help  us,  except  my  neighbor 
across  the  street  who  had  been  providing  me  with  at  least  2-liter 
pop  bottles  of  water  every  day. 

22.         I  use  this  water  to  flush  the  toilet,  wash  dishes,  sponge 


bathe  my  children  and  nyself,  cook  and  clean. 

23.  Since  the  City  shut-off  the  water,  the  pipe  in  the  ground 
in  front  of  ny  house  has  been  leaking  and  I  watch  the  water  run 
across  the  walkway,  down  the  driveway  and  into  the  sewer.  I've 
called  the  Water  Board  three  times  and  they  say  they  will  send 
someone  out,  but  no  one  has  come.  I  have  seen  water  trucks  in  the 
neighborhood  often  recently,  but  none  have  come  to  repair  the 
leaking  pipe  in  front  of  my  house. 

24.  The  week  that  the  water  was  shut-off,  ny  four  year  old 
son,  Anthony  and  I  developed  chicken  pox. 

25.  My  doctor  recommended  that  I  give  my  son  aveeno  oatmeal 
baths  to  relieve  the  itching.  Because  I  had  no  water,  the  best  I 
could  do  was  to  give  him  sponge  baths,  filling  a  plastic  basin  with 
water  borrowed  from  r.y  neighbor  in  pop  bottles. 

26.  Two  of  r.y  children,  the  one  year  old^and  the  two  year  old 
are  still  in  diapers. 

27.  Until  Kay  3,  I  had  three  in  diapers. 

28.  Wednesday  of  last  week,  I  buried  my  two  month  old 
daughter,  who  I  lost  to  sudden  infant  crib  death. 

29.  I  don't  know  how  I  can  continue.  I  am  depressed  and 
grieving.  I  have  not  been  able  to  eat.  My  doctor  prescribed 
medication  yesterday  to  help  me  sleep.  I  can't  believe  what  has 
happened  to  me.  I  keep  praying  for  help.  I  know  I  must  be  strong 
for  my  children.  The  four-year  old  asks  me  why  we  have  to  borrow 
water  from  the  neighbors  and  why  he  can't  take  a  bath.     I  try  to 

-  3  - 


hide  my  shame  because  I  don't  want  him  to  feel  it  or  to  know  how 
worried  I  am. 

30.  For  the  past  two  days,  the  8  0  degree  weather  has  made 
living  without  running  water  even  harder. 

I  declare  that  the  statements  above  are  true  to  the  best  of  my 
information,  knowledge  and  belief. 


aa :  \water \doe .  dec 



JOHN  DOE,   under  penalty  of  perjury,   says  as  follows: 

1.  I  aa  using  the  name  of  John  Doe  in  this  statement 
because  I  was  forced  to  sell  my  food  stamps  which  is  illegal  and  I 
do  not  want  to  be  prosecuted.     I  am  42  years  old. 

2.  I  live  at  678  Selden,  in  the  Cass  Corridor  area  of 


3.  I  have  lived  at  this  address  for  the  past  8  years. 
I  share  my  apartment  with  another  tenant.  The  apartment  has  one 
room  and  a  bathroom.  Until  October  1,  1991,  we  were  both  receiving 

4.  Since  GA  has  been  terminated,  and  after  the  GA 
reductions  in  Augus-c,  the  manager  of  the  building,  whose  name  is 
pronounce  "John  Vaugnville"  has  been  extorting  food  stamps  from 
tenants  in  the  building. 

5.  Since  all  of  the  mail  for  the  building  is  delivered 
to  the  manager,  he  is  able  to  hold  our  food  stamp  cards.  For  the 
past  three  months,  he  has  been  driving  tenants  to  the  food  stamp 
distribution  center  on  Grand  River  to  collect  our  food  stamps. 
Then  he  forces  us  to  sell  the  food  stamps  on  the  street  in  front  of 
the  distribution  center  while  he  waits  in  the  car.  We  get  70  cents 
for  every  dollar  of  food  stamps.  This  month  I  collected  $77  for 
$111  in  food  stamps.  We  are  then  forced  to  turn  over  every  penny 
to  him  for  rent.  Because  he  forces  several  tenants  to  live 
together  in  these  two-room  apartments,  he  is  able  to  collect  full 
rent  this  way. 



6.  When  I  gave  the  manager  my  food  stamp  money  this 
month,  I  asked  him  if  I  could  have  a  couple  of  dollars  back  to  buy 
a  birthday  cake  for  my  son  who  turned  10  on  October  11.  John 
became  violent  and  with  his  fist,  fractured  my  face  beyond  repair. 
I  was  hospitalized,   as  a  result. 

7.  John  is  able  to  control  the  tenants  with  an  electric 
cattle  prod.  The  prod  is  like  a  long  pipe  with  an  electric  shocker 
on  the  end  of  it.  He  is  threatening  us  with  it.  I  have  been  the 
victim  of  his  cattle  prod  on  more  than  one  occasion.  Once  I  was 
hospitalized  for  a  spleen  injury  because  of  the  cattle  prod.  He 
hit  me  with  it  because  I  invited  some  of  my  friends  who  are  black 
into  my  apartment. 

8.  I  have  filed  police  reports  because  of  these 
incidents  but  nothing  has  been  done. 

9.  I  have  no  income  and  no  food  stamps  to  purchase 
food.  I  suffer  from  sclerosis  of  the  liver,  pancreatism,  seizures 
and  I  had  a  heart  attack  a  few  years  ago.  I  am  an  alcoholic,  and 
have  been  hospitalized  and  received  in-patient  treatment  at  various 
times  in  the  past. 

10.  Before  I  gave  the  information  for  this  affidavit,  I 
had  never  heard  of  State  Disability  Assistance-  I  will  apply  for 
it.  I  believe  I  am  eligible  because  I  receive  a  monthly  medical 
card.  I  received  one  for  October,  1991,  but  I  did  not  receive  a  GA 
or  SDA  check. 

I  declare  that  the  statements  above  are  true  to  the 
best  of  my  information,  knowledge  and  belief. 

Date  joti^ 


1.  I  am  a  41  year  old  resident  of  Oak  Park,  Michigan.  I  was 
receiving  General  Assistance  until  I  was  cut  off  on  October  1, 
19S1.  I  now  receive  neither  benefits,  nor  medical  insurance.  The 
only  income  I  have  is  food  stamps. 

2.  I  may  be  evicted  from  my  home  at  any  time.  I  have 
already  received  two  seven-day  notices  which  I  have  been  able  to 
stall  by  putting  down  small  amounts  of  money.  Since  I  owe  $1200 
and  haven't  paid  my  rent  fully  in  over  three  months,  it  could 
happen  at  any  time  and  will  by  November  1st  at  the  latest. 

3.  I  am  HIV  positive  and  have  not  been  able  to  see  my  doctor 
who  I  am  suppose  to  see  monthly.  I  am  also  suppose  to  take  AZT, 
Bactrim,  Dilantin  and  Motrin  daily.  Since  I  stopped  taking  my 
medicine  I  have  been  in  a  great  deal  of  pain  and  have  felt  very 
tired.  I  am  worried  about  the  long  term  effects  of  not  caring  for 
my  medical  needs. 

4.  I  have  received  a  shutoff  notice  for  my  telephone  and  am 
due  to  receive  a  shutoff  notice  for  my  electricity  any  day. 

5.  I  also  care  for  my  partner  who  is  disabled.  We  will  both 
be  homeless  very  soon.  He  was  cut  off  GA  and  has  no  other  sources 
of  income  either.     We  have  no  where  to  go  when  we  are  evicted. 

6.  I  have  pending  claims  for  SDA  and  Social  Security 
Disability  but  have  no  idea  when,  if  ever,  these  will  come  through. 
Ewi  if  they  do  approve  me,  it  will  probably  be  long  after  we 
become  homeless. 

7.  I  applied  for  General  Assistance  in  May.     When  DSS  did 



not  respond  ro  my  request  for  GA,  I  applied  for  a  hearing.  I 
finally  had  a  pre-hearing  conference  and  was  approved  for  GA  in 
July,  1991.  I  feel  this  was  an  unduly  long  time  to  wait  for 
approval . 

8.  The  fact  that  I  am  going  to  be  sick  with  no  roof  over  my 
head  makes  me  very  anxious  and  angry. 

I  declare  that  the  statements  above  are  true  to  the  best  of  my 
information;  knowledge  and  belief.  ^^m^ 


B2 : \saxon\Ferman.dec 



CZCLXR^TIOy  or  ?AuL  knoslocz 

1.  I  am  a  57  year  old  former  recipient  of  General 
Assistance.  I  was  cut  off  general  assistance  on  October  1^  1991. 
I  am  a  resident  of  Detroit  and  have  lived  in  this  area  all  of  my 

2 .  I  have  a  pending  application  for  both  SDA  and  Social 
Secxirity  Disability.  I  have  no  income.  I  live  in  a  hotel  and  could 
be  evicted  at  any  time.  I  am  already  behind  in  my  rent  and  am 
depending  on  the  kindness  of  my  landlady  not  to  throw  me  out  into 
the  street.  I  have  never  been  married  and  have  no  children  or 
other  relatives  that  I  can  depend  on  to  give  me  a  place  to  stay 
when  I  am  evicted. 

3.  I  have  many  health  problems  and  take  five  different 
medications.  I  have  congestive  heart  failure,  alcohol  liver 
disease  and  a  number  of  problems  with  my  arteries.  I  have  been 
experiencing  chest  pains  very  often  now  and  my  heart  is  beating 
very  fast  recently.  I  experienced  chest  pains  yesterday  (10/20/91) . 
My  doctor  wrote  a  letter  for  me  to  give  to  Social  Security  and  DSS 
that  says  I  cannot  pull,   lift,  or  push. 

4.  My  last  part-time  job  was  five  years  ago.  I  am  worried 
about  what  will  happen  when  I  do  not  get  the  medicines  I  need.  I 
don't  know  what  I  will  do  if  I  have  to  be  hospitalized  for  my  heart 
because  no  one  will  take  me  without  health  insurance. 

I  declare  that  the  statements  above  are  true  to  the  best  of  my 
information,  knowledge  and  belief. 





1.  I  aa  41  years  old,  and  live  in  Detroit,  Michigan. 

2.  I  have  been  working  the  last  20  years  in  four  different 
jobs.     My  last  job  was  at  New  York  Carpet  World  in  data  entry, 

3 .  I  had  to  stop  working  because  I  was  hospitalized  for 
asthma  and  then  I  was  in  a  severe  car  accident  and  injured  my 
spine.  As  a  result,  I  cannot  sit,  stand,  or  lay  down  for  very  long 
periods  of  time.  I  take  muscle  relaxers  for  my  spine.  However,  I 
cannot  afford  to  pay  for  the  prescription.  I  currently  have  five 
pills  left.  I  am  supposed  to  taJce  two  per  day.  I  am  only  taking 
one  per  day  right  now  in  order  to  make  them  last.  I  am  in  pain 
because  I  do  not  have  enough  medication  and  I  am  bedridden  most  of 
the  day. 

4.  I  have  not  worked  in  a  year,  since  the  hospitalization 
for  asthma  and  the  car  accident.  I  was  supported  by  General 
Assistance     from    December,   1990,  until  October  1,  1991. 

5.  Since  October  1,  1991,  I  have  not  been  able  to  pay  for 
my  medications  for  the  asthma  without  GA  medical  assistance.  I 
have  not  been  able  to  breath  well  for  two  weeks.  I  cannot  sleep 
when  this  happens.  I  have  been  going  to  my  doctor  weekly  for 
asthma  treatments  so  that  I  can  breathe.  I  have  a  breathing  machine 
in  my  home  that  I  use  four  times  a  day.  I  take  slobid  and 
prednisone,  and  prevental  for  the  machine,  valentin  inhaler,  and 
another  inhaler  berintin.  The  slobid  costs  about  $10.00  per  pill. 
I  take  it  twice  per  day.     The  prednisone  costs  $10.00  per  pill  and 



I  take  four  pills  per  day.  The  preventol  for  my  machine  costs 
$125.00  per  box  vhich  lasts  about  one  week.  The  rwo  inhalers  are 
$20.00  each  and  last  about  a  month.  I  am  worried  that  without  GA 
medical,  I  will  not  be  able  to  pay  for  these  medications  and  that 
the  hospitals  will  not  take  me  the  next  time  I  have  an  asthma 
attack,  6.  I  have  received  an  eviction  notice  because  I  cannot 
pay  the  rent  and  I  have  nowhere  to  go. 

8.  My  gas  is  shut-off  and  I  have  no  heat.  I  have  received 
a  water  shut-off  notice,  and  am  behind  in  my  electric  bill 
payments . 

9.  I  am  extremely  depressed  and  don't  know  what  I  will  do. 
If  I  could  work,  I  would. 

10.  I  have  an  application  for  Social  Security  Disability 
pending.  When  I  received  the  notice  that  my  GA  was  ending,  I 
called  my  worker  and  told  her  I  was  too  sick  to  work.  She  sent  me 
a  form  which  I  sent  ro  my  doctor  who  filled  it  out  and  sent  it  back 
to  DSS.  The  form  says  that  I  am  unemployable.  (Exhibit  )  But  I 
still  am  not  getting  state  disability  assistance.  Saturday,  the 
Department  sent  me  more  forms  from  a  medical  contact  worker,  and  I 
received  a  whole  new  booklet,  a  24  page  application  for  assistance. 
Apparently,  I  am  supposed  to  take  the  book  in  on  October  29th,  when 
I  have  an  appointment  with  my  worker,  and  I  am  supposed  to  take 
back  the  medical  form  from  the  medical  contact  worker  on  November 

5,  when  I  have  an  appointment  with  her.  In  the  meantime  I  have  no 
heat,  my  water  is  scheduled  to  be  shut-off  and  I  am  likely  to  be 
evicted . 

I  declare  that  the  statements  above  are  true  to  the  best  of  my 
information,  knowledge  and  belief. 




•    ss . 


ANGUS  MUNRO,  being  sworn,  says: 

1)  I  am  60  years  old.  -  ' 

2)  I  was  receiving  General  Assistance  prior  to  October  1, 


3)  Currently,    I  have  no  income.     The  only  help  I  get  is 
Food  Stamps. 

4)  I  am  living  in  my  van. 

5)  To  get  by,   I  donate  blood  for  money. 

6)  When  I  was  on  G.A.,  I  was  buying  a  mobile  home  for  $500. 
Now  I  can't  pay  lot  rent  or  afford  to  move  it  anywhere.     I  can't 
finish  paying  on  it,   so  the  money  I  put  into  it  is  probably  lost. 

7)  I  tried  to  apply  for  the  State  Disability  Assistance 
Program  in  September  before  my  G.A.  case  closed.     The  people  at 
the  Department  of  Social  Services  told  me  I  wouldn't  be  eligible 
and  didn't  even  give  me  an  application  or  form  to  take  to  my 

8)  I  spoke  to  my  food  stamps  caseworker  on  October  17, 
1991,    to  find  out  if  G.A.   had  been  reinstated.     She  said  no  and 
didn't  say  anything  about  applying  for  the  S.D.A.  program. 

9)  I  am  disabled  in  that  I  have  a  plate  in  my  ankle. 

I  can't  bend  it  or  put  any  pressure  on  it  most  of  the  time. 
I  also  have  a  lot  of  lower  back  pain. 

10)     I  used  to  be  a  carpenter  but  haven't  been  able  to  work 
since  1976. 

I    Angus  Munro 

On  this  18th  day  of  October,   1991,  before  me  personally 
appeared  ANGUS  MUNRO,  who,  being  duly  sworn,  did  depose  and  say 
that  the  facts  stated  in  the  foregoing  Affidavit  are  true  to  the 
best  of  his  knowledge,    information  and  belief,   and  that  he  signed 
the  Affidavit  as  his  free  act  and  deed. 

Gretchen  Tarchinski,  Notary  Public 
Washtenaw  County,  Michigan 
My  commission  expires  December   4,  1994. 



1.  My  name  is  Joella  Perdue.  I  am  4  2  years  old  and  I  live 
in  Detroit,  Michigan. 

2.  In  April,  1991,  I  started  receiving  $56.00  every  two 
weeks  in  General  Assistance  benefits.  Those  benefits  were  reduced 
to  $39.50  every  two  weeks  in  May,  and  again  to  $33.40  every  two 
weeks  in  August,  1991.  In  October  my  General  Assistance  benefits 
were  terminated. 

3.  I  have  not  been  able  to  work  since  1985.  I  suffer  from 
liambar  monocytes,  which  is  polio  and  arthritis  of  the  spine. 

4.  My  gas  service  has  been  shut-off.  Without  heat  I  am  in 
a  lot  of  pain.  The  knots  in  my  knees,  and  spine  make  walking 

5.  I  also  suffer  from  bronchial  asthma  and  without  heat  it 
is  painful  to  talk. 

6.  Because  of  angina  and  high  blood  pressure,  I  take 
nitroglycerin  and  Procardia  prescriptions. 

7.  Without  General  Assistance  medical  assistance,  I  am  not 
able  to  pay  for  these  prescriptions. 

8.  I  am  on  a  special  diet  for  my  diabetes.  I  don't  get 
enough  food  stamps  to  cover  the  amount  and  types  of  food  I  need, 
and  I  have  no  money  to  supplement  the  food  stamps. 

9.  Medical  transportation  has  been  discontinued  for  poor 
persons  like  myself.  It  is  difficult  for  me  to  endure  bus  rides  to 
to  my  doctor  because  of  the  pain  in  my  spine. 

10.  Although  riy  home  is  paid  for,  I  have  no  way  to  pay  for 
the  taxes  or  water.  The  water  has  been  shut-off  for  non-payment.. 
Electrical  service  to  my  home  has  also  been  discontinued. 

11.  I  am  very  depressed  and  find  it  hard  not  to  give  up. 

I  declare  that  the  statements  above  are  true  to  the  best  of  my 
information,  knowledge  and  belief. 




1.  My  name  is  Mary  Baugh.  I  am  56  years  old  and  I  live  in 
Hi^land  Park,  Michigan. 

2.  I  worked  for  21  years  at  Arnold  Nursing  Home  as  a  nurses 
aide,  until  March,  1991,  when  I  had  a  stroke  and  could  no  longer 
work.  The  nursing  home  had  an  disability  insurance  policy  which 
covered  me  for  a  while.  After  the  disability  insurance  money 
terminated,  I  applied  for  GA,  but  by  that  time,  I  was  told  the 
program  had  ended. 

3.  I  am  a  diabetic  and  I  suffer  from  hypertension.  I  take 
Aldomet  for  the  hypertension  and  Diabenese  for  the  diabetes. 
Without  the  Aldomet  I  could  have  another  stroke.  Without  the 
Diabenes,  my  blood  sugar  goes  way  up.  When  this  happens,  I  can't 
move,  I  get  dizzy  and  blackout. 

4.  I  cannot  afford  these  medications.  I  have  a  ten  day 
supply  of  Diabenes  and  Aldomet  left.  I  have  been  skipping  some 
days  to  make  my  medications  last.  Without  my  medication  my  blood 
si^r  goes  way  up.  When  this  happens  I  can't  move.  I  get  dizzy 
and  blackout. 

4.  I  need  to  eat  three  meals  a  day  and  one  snack.  I  get 
$111.00  in  food  stamps.  This  does  not  cover  the  amount  of  food  I 
need.  Without  the  right  amount  of  food  I  become  dizzy  and 
nauseous . 

5.  I  have  received  a  seven-day  eviction  notice  and  I  have  no 
place  to  go,  if  I  am  evicted.  I  have  no  family  or  friends  who  can 
take  me  in.     I  am  worried  that  I  will  wind  up  in  the  streets. 



6.  I  had  surgery  on  my  right  eye  rwo  weeks  ago,  but  I  still 
can't  see  very  well.  I  aa  scheduled  to  have  surgery  on  my  left  eye 
on  Tuesday,  October  22,  1991.  Then,  another  surgery  will  be 
scheduled  for  my  right  eye  again,  because  the  first  surgery  did  not 
work.     I  am  having  problems  with  my  eyes  because  of  the  diabetes. 

7.  I  tried  to  apply  for  state  disability  assistance,  but  the 
Department  of  Social  Services  would  not  let  me  apply  because  I  did 
not  have  an  appointment  when  I  went  in.  I  currently  have  a  Social 
Security  Disability  application  pending  .with  the  federal 
government . 

I  declare  that  the  statements  above  are  true  to  the  best 
of  my  information,  knowledge  and  belief. 


B2  \saxon\Baugh . dec 




1.  I  am  49  years  old  and  I  live  in  Detroit,  Michigan. 

2.  I  suffer  from  diabetes,  osteoarthritis,  heart  problems 
and  high  blood  pressure. 

3.  I  am  unable  to  work,  and  until  October  1,  1991,  I  was 
supported  by  General  Assistance. 

4.  I  have  no  medical  insurance,  but  fortunately  the 
Southwest  Hospital  and  Medical  Center  is  still  honoring  my 
Countycare  medical  card  for  October,  although  payments  for  GA 
medical  assistance  terminated  October  1  also.  I  am  worried  that 
soon  (the  end  of  this  month)  my  doctors  will  stop  honoring  the  card 
because  they  will  not  be  paid.  In  addition.  Southwest  Hospital 
which  is  the  medical  center  that  I  am  required  to  go  to  under 
CountyCare  medical  program,  is  closing.  The  emergency  room  has 
already  closed  and  the  hospital  is  operating  with  a  skeletal  staff. 
I  do  not  know  whether  or  not  I  will  be  able  to  see  my  doctor  on 
Friday-  In  addition,  without  any  income,  I  have  no  money  to  pay 
the  50-cent  co-pay  for  my  prescriptions  that  Countycare  requires. 
I  am  currently  treated  with  24  different  medications. 

5.  I  take  insulin  injections  twice  a  day.  Without  the 
insulin  I  could  enter  into  a  diabetic  coma,  and  die. 

6.  I  also  take  medication  for  my  high  blood  pressure,  and 
coronary  problems,  including  angina.  Without  the  medication  I  risk 
a  stroke  or  heart  attack. 

7.  I  am  on  the  verge  of  complete  renal  disfunction.  This 
means    that   my    kidneys    could    fail   at    any   time    and    that    I  will 


require  regular  dialysis  treatments,  without  which  I  will  die. 

8.  Because  of  the  diabetes,  VaV  feet  are  hemorrhaging. 
Also  my  thumb  has  begun  to  hemorrhage.  I  cannot  afford  proper 
daily  treatment  for  these  conditions.  Without  appropriate 
treatment,  gangrene  is  certain  to  settle  in,  which  may  require 
amputation.  Because  the  loss  of  my  toenails,  I  am  unable  to  wear 

9.  Because  of  edema  and  poor  circulation,  my  feet  and  legs 
swell,  causing  pain  and  discomfort.  My  hands,  elbows,  shoulder, 
knees,  ankles  are  swollen  due  to  osteoarthritis. 

10.  I  suffer  from  bleeding  hemorrhoids  which  I  am  unable  to 
treat  because  I  have  no  money  for  prescriptions  or  over-the-counter 
medications . 

11.  I  was  served  with  a  seven-day  eviction  notice  on  October 
3,  1991. 

12.  Because  of  the  29%  reduction  in  GA  benefits  in  August  and 
September,  My  phone  bill  is  two-months  in  arrears.  I  need  my 
phone  for  medical  emergencies.  Last  year,  a  friend  used  it  to  call 
EMS  because  I  was  in  a  diabetic  coma.  I  would  have  died  without 
the  phone. 

13.  Because  I  am  diabetic,  I  am  on  a  special  diet  and  need 
to  eat  properly  balanced  meals.  I  receive  $111.00  in  food  stamps 
per  month  which  allows  me  about  $3.50  for  food  per  day,  which  is 
not  enough. 

14.  I  have  no  family  in  the  area  that  I  can  go  to  for  help. 

15.  I   haven't   worked  since  1975,    when   I   was   employed  as  a 



driver  for  Photoaat  corporation.  I  was  forced  to  give  up  my  job 
because  I  became  to  sick  to  work. 

16.  I  have  an  application  for  SSI  pending  and  I  applied  for 
State  Disability  Assistance  in  August,  1991.  I  am  waiting  for 
decisions  from  the  state  and  from  the  federal  government. 

17.  I  am  extremely  depressed  and  feel  like  giving  up.     I  do 

not  know  where  I  will  go  when  I  am  evicted.     I  cannot  live  in  the 

streets  and  I  understand  the  shelters  are  full. 

I  declare  that  the  statements  above  are  true  to  the  best  of  my 
information,  knowledge  and  belief. 



B2 \saxon\montoya . dec 




KAREN  MASSINGIIXE,  under  penalty  of  perjury,  says  as  follows: 

1.  I  aa  the  Director  of  the  Senior  Citizen  Case 
Coordination  and  Support  Program  at  Project  Scout,  located  in  the 
Cass  Corridor  in  Detroit.,  Michigan. 

2.  The  program  is  funded  by  the  Detroit  Area  Agency  on 
Aging  to  provide  various  supportive  services  to  the  frail  elderly 
in  the  Cass  Corridor »  These  services  include  connecting  seniors 
with  meals,  home  help,  medical  care,  transportation,  and  housing 
placement,   as  needed. 

3.  There  are  approximately  3,000  seniors  who  live  in  the 
Cass  Corridor  area  of  Detroit. 

4.  At  any  given  time,  we  are  serving  approximately  200 
seniors,  ages  60  or  older.  | 

5.  Of  those  seniors  who  are  in  the  60-64  age  group,  j 
approximately  50%  are  supported  by  GA.  j 

6.  Last  week,  after  notices  went  out  to  approximately  j 
97,000  GA  recipients  state-wide,  the  number  of  new  seniors  who  came  | 
in  requesting  assistance  doubled.  The  seven  seniors,  supported  by  j 
G&  who  contacted  our  office  for  assistance  were  extremely  panicked.  | 
I  am  able  to  describe  the  situations  of  some  of  these  seniors  as  j 
follows:  j 


-1-  ! 


7.  One  senior,  aged  63,  lost  GA  October  1  and  came  into 
our  office.  He  was  liaping  when  he  caae  in.  I  am  attempting  to 
locate  housing  for  him  by  October  17  which  is  the  date  he  must  be 
out  of  the  housing  he  has  rented.  On  Thursday,  October  3,  1991,  I 
contacted  his  DSS  worker,  Mr.  Blackwell,  at  the  Medbury  Office  in 
Detroit.  We  discussed  this  senior's  eligibility  for  SDA  and  how  he 
could  apply.  Mr.  Blackwell  acknowledged  that  the  senior  was  63 
years  old  and  suffered  from  arthritis.  However,  he  said  the  SDA 
program  was  changing  daily.  He  even  insisted  that  it  had  a  new 
name,  SAD.  He  informed  me  that  I  could  come  to  the  office  to  pick 
up  a  medical  form  that  the  senior  should  take  to  a  doctor.  I 
immediately  went  to  the  office  and  picked  up  the  form.  While  at 
the  DSS  office,  I  also  asked  the  worker  about  the  senior's, 
eligibility  for  ENP  assistance  so  that  he  could  move  and  store  his 
belongings  while  he  was  waiting  for  a  decision  on  his  eligibility 
for  disability  assistance.  I  was  told  by  Mr.  Blackwell  that  there 
was  no  ENP  program.  I  have  until  the  17th  to  try  to  locate  housing 
for  this  senior,  which  I  will  not  be  able  to  do  if  he  has  no 
income,  or  ability  to  pay  a  security  deposit  and  first  months 

8.  Senior  #2  is  a  60-year  old  woman,  named  "Mary"  who 
contacted  me  after  she  received  her  GA  termination  notice  on 
Tuesday,  September  24.  She  appeared  to  be  extremely  distraught. 
She  was  twisting  a  kleenex  in  her  hand  and  mumbling  repeately 
"Three  days  if  I  can  only  stay  three  days.  Three  more  days,  if  I 
can    only    stay    three    days."       She    could    not    answer    any    of  my 



questions  and  vas  r.ot  lucid.  I  referred  her  to  a  local  shelter. 
On  Wednesday,  I  contacted  Adult  Protective  Services  of  DSS.  I 
explained  Mary's  situation  and  also  informed  then  that  because  her 
GA  vas  terminated  and  she  had  no  income  I  could  not  locate  housing 
for  her.  They    did   not  mention   SDA.      Instead,    someone  from 

Protective  Services  call  me  back  on  Thursday  afternoon  and  advised 


me  to  take  Mary  to  the  crisis  center  at  Receiving  Hospital  in  j 
Detroit-  I  infomed  them  that  I  did  not  believe  she  would  go 
voluntarily.  They  told  me  they  would  call  back.  On  Friday,  the 
same  DSS  protective  services  worker  called  me,  and  told  me  that 
another  worker  had  been  previously  assigned  to  "Mary's"  case.  The 
worker  acknowledge  that  the  assigned  worker  was  on  vacation  and 
suggested  that  I  contact  the  supervisor  on  Monday.  .  ] 

9.  In  the  meantime,  "Mary"  's  landlord  came  to  my  office  on 
Friday  looking  for  her.     The  landlord  presented  me  with  three  vials 


of    medication    for     "Mary".       One    bottle    was    labelled    "haldol";  i 


another  was  labelled  "procardia",  and  I  do  not  remember  the  label  j 


on  the  third  vial.      I  was  not  able  to  locate  Mary  at  the  shelter.  | 

I  made  other  attempts  to  locate  her  at  the  shelter  on  Saturday  and  ! 


Monday,  but  she  was  not  there.  On  the  following  Thursday,  October  j 
3,     I  ran  into  Mary  on  the  streets.     She  was  extremely  disturbed,  j 

and  incommunicable-     She  would  not  take  her  medication  from  me.  | 


10.  Because  I  am  involved  in  housing  placement,   I  have  seen 
landlords  who  rent  to  GA  recipients  closing  buildings  down.     This  j 

presents  additional  placement  problems  for  our  office  since  elderly  j 


persons  with  other   income  sources  are  threatened  with  displacement  j 


when  the  buildings   are  closed.      In  one  case,   tenants  are  simply  j 
being  locked  out  by  a  building  owner.     These  tenants  are  homeless 
instantly  without  any  notice  or  opportunity  to  locate  temporary 

I  declare  that  the  statements  above  are  true  to  the  best  of 
my  information,  knowledge,  and  belief 


DATED:     October  2,  1991 


Raynond  Haley,  under  penalty  of  perjury,  says  as  follows: 

1.  I  an  currently  living  in  the  Homeless  Union  Drop- 
In  Center  in  the  Cass  Corridor  in  Detroit  during  the  day  and  at 
Sacred  Heart  Catholic  Church  in  the  Interfaith  Hopitality 
Ministries  Rotating  Shelter  in  the  evenings.  I  have  been  living 
like  this  for  six  days  since  I  was  forced  to  leave  the  Lillibridge 
Hotel  on  East  Jefferson  in  Detroit  on  the  morning  of  October  1, 

2.  Prior  to  October  1,  I  was  receiving  GA  and  ny 
rent  for  my  hotel  room  at  the  Lillibridge  was  vendored  directly  to 
the  hotel  owner.  My  entire  grant  of  $17  4  per  month  was  vendored  to 
pay  the  rent  at  the  hotel. 

3.  I  have  a  workers  conipensation  claim  pending  for 
a  head  injury  I  received  on  the  job  in  November,  1990. 

4.  When  I  received  a  notice  about  the  GA  disability 
supplement  in  July,  I  went  to  DSS  to  apply  for  it.  When  I  went  in 
to  apply,  I  told  the  worker  about  my  workers'  compensation  claim 
and  informed  her  -chat  I  wanted  to  apply  for  the  state  disability 
assistance  supplement  so  that  my  check  would  not  be  cut  again.  It 
had  already  been  cut  from  $24  6  to  $2  06  in  March  and  my  rent  was 
$200  at  the  hotel.  The  DSS  worker  had  me  sign  a  form  agreeing  to 
repay  my  GA  grant  if  and  when  the  workers  compensation  claim  is 
paid.     However,  she  did  not  give  me  any  papers  to  take  to  a  doctor 


58-688  0-92-8 


to   apply   for    rhe    supplerenc,    or   r.eil    ne   hov   to   apply    for  the 
supplezient . 

5.  In   August,    ny   grant   was    cut   to    $174    and   my  I 

[  ' 
landlord  agreed  to  accept  the  lower  vendored  amount  of  $174  so  I  j 

converted  the  vendor  to  $174  and  vendored  my  entire  grant  amount.  | 

6.  On  September  23   I  received  a  notice  from  DSS 
that  my  GA  grant  was  terminated  effective  October  1. 

7.  I  went  to  the  DSS  office  at  7608  3*0.116 ond  m 
Detroit  on  September  24  and  no  one  would  see  me  because  I  did  not 
have  an  appointment.     I  waited  all  day  until  they  closed  and  was  | 
told  to  come  back  -he  next  day.  I 

8.  I  went  back  to  the  same  DSS  office  the  following  ' 
day,  September  25,  and  my  worker  gave  me  a  DSS-4  9  form  and  told  me  i 
to  have  it  filled  cut  by  a  doctor  and  to  bring  it  back  to  her.  j 

9.  I  have  not  been  able  to  obtain  an  appointment 
with  my  doctor  to  complete  the  form.  Because  I  do  not  have  j 
Medicaid,  I  am  on  the  DSS  County-Care  Health  Source  medical  program  j 
for  GA  recipients  at  the  Mercy  Family  Clinic  in  Detroit.  I  cannot  i 
get  an  appointment  there  until  October  17.  | 
11-  In  the  meantime,  because  I  had  to  leave  the  j 
hotel  to  avoid  being  locked  out,  I  am  staying  at  the  Homeless  Union] 
Drop-In  Center  during  the  day  and  the  Rotating  Shelter  at  Sacred j 
Heart  Catholic  Church  at  night-     It  is  noisy  and  I  am  staying  with, 

70  strangers,  some  with  obvious  mental  problems.    There  are  no  beds, 


and  we  all  sleep  in  two  rooms  on  the  linolebum  floor  on  mats  at  the j 
Sacred  Heart  Activities  Center.      As  of   today,    Sunday,    October  6, i 


tsere  are  no  churches  participating  in  the  rotating  shelter  for  the 
next  tvo  weeks  so  ve  will  be  staying  in  one  roos  at  the  Homeless 
Ou.on  Drop-in  Center.  I  aa  very  depressed  about  living  like  this 
and  I  see  no  end  in  sight.  I  keep  calling  my  Workers'  Compensation 
lawyer  to  find  out  how  long  I  will  have  to  wait,  but  I  have  not 
been  able  to  get  a  response. 

I  declare  that  the  statements  above  are  true  to  the  best 
of  my  information,  knowledge  and  belief. 




MARY  FAIRCLOTH,   ur.der  penally  of  perjury,   says  as  follows:  ' 

1.  My  naae  is  Mary  Faircloth.  I  aa  married  to  Vernon  ^ 
Faircloth.  Vernon  is  54  and  I  am  49. 

2.  We  live  in  Atlanta,  Michigan  in  Montmorency  County.  i 

3.  Both  of  us  vere  receiving  General  Assistance  until  October 
1,  1991.  We  have  been  cut  off  GA.  We  have  each  applied  for  SSI 
within  the  last  yeax,  and  both  been  denied.  | 

4.  I  am  an  insulin-dependent  diabetic.  I  take  2  6  xinits  of  j 
Humulin-N  in  the  morning  and  13  units  of  Kumulin-R  in  the  evening. 

I  also  have  a  thyroid  problem  and  severe  osteoporrhosis .  I  have 
fractured  three  bones.  I  take  synthroid  for  my  thyroid  problem  and 
hormone  therapy.  I  have  been  warned  by  my  doctors  that  an 
interruption  of  hcr-one  therapy  can  put  me  at  risk  for  cancer. 

5.  Vernon  has  had  three  heart  attacks   and  has  rheumatoid 


arthritis  of  the  spine.  He  has  had  surgery  on  his  knee  and  needs  | 
it    on   his    other   knee.       He   has    had    surgery    for    carpel    tunnel  { 

syndrome  and  has  a  muscular  problem  that  affects  the  use  of  this  j 


thumb  and  forefinger   (De  Quervain's  disease).     He  takes  tenormin  j 


(for  his  heart),  ansaid  (for  arthritis),  voltaren  (for  arthritis),  | 

lopid    (for    high   cholesterol),    cytotec    and    zantec    (for    stomach  j 


problems  caused  by  the  arthritis  medications) .  ! 


6.  On  Friday,   October  4,    1991  I  spoke  to  my  worker  at  the 
Montmorency  Department  of  Social  Services  to  seek  GA  disability  for  j 
my   husband    and    myself.       My   worker    mailed    medical    forms    to  our 
doctors,     and    told     me    we    would    have     to    pay     for    the  medical 
examination    at    our    doctor's    office    since    there    is    no    more    GA  i 


Medical.  He  did  net.  infora  sie  that  there  is  a  vay  to  get  eaergency 
medications.    He  did  not  indicate  that  DSS  could  authorize  payaent 

!        to    obtain    the    aedical    reports    that    we    need    to  demonstrate 

I  disability. 

1  7.     I  vill  run  out  of  ay  premarin  (hormone  therapy)  and 

thyroid  medication  on  Thursday. 

8.  My  worker  has  told  me  that  we  should  get  a  job  and 
has  also  told  me  ve  should  move  in  with  .  my  daughter  and  her 
husband.  However,  her  husband  is  disabled,  they  have  a  small  home 
and  three  sons  and  are  barely  surviving. 

I  I  declare  that  the  statements  above  are  true  to  the  best 


of  my  information,  knowledge,  and  belief - 



pgpWATToy  OF  ROBTW  8. 

1.  I  am  35  years  old  and  live  alone  in  St.  Clair  County, 

2.  My  only  source  of  income  is  Supplemental  Security  Income, 
in  the  amount  of  $426.00  per  month,  and  I  receive  $100.00  in  food 
stamps  each  month. 

3.  I  receive  SSI  because  I  am  severely  disabled,  as  I  suffer 
from  insulin  dependent  diabetes,  ketoacidosis  diabetes,  peripheral 
neuropathy  and  severe  chronic  depression  and  I  am  presently 
experiencing  suicidal  thoughts.  I  understand  that  my  illnesses 
could  result  in  my  death  within  five  (5)  years.  I  have  been 
hospitalized  numerous  times  in  psychiatric  facilities  for  suicide 
attempts  and  in  hospitals  for  uncontrolled  ketoacidosis,  which  is 
life  threatening. 

4.  I  take  the  following  prescription  medications  daily: 

Stuartnatal  (vitamins) 

Pamelor  (anti-depressant) 








Vancenase  (nasal  spray) 

Humolin/Novolin  70/30  Insulin 

Humolin/Novolin  Regular  Insulin 

Hydrocortisone  cream 

Cough  syrup 

Proventil  (inhaler) 

Actifed  (not  covered  by  Medicaid) 


5.  My  13  year  old  son  lives  with  my  parents  in  St.  Clair 
County  because  I  am  unable  to  provide  full-time  care  for  him,  and 
because  he  is  anxious  and  too  apprehensive  to  live  with  me.  He 
fears  that,  because  of  my  severe  illnesses,  he  will  come  home  and 
find  me  dead.  His  father  was  killed  in  an  automobile  accident 
three  (3)  years  ago. 

6.  My  parents,  although  able  to  care  for  my  son,  do  not  have 
adequate  living  space  for  both  of  us.  However,  they  live  nearby  so 
I  am  able  to  visit  with  my  son  frequently. 

7.  I  was  hospitalized  for  two  (2)  weeks  this  past  October  in 
Port  Huron  Hospital  for  severe  depression  and  suicidal  thoughts. 

8.  At  the  present  time,  I  rent  a  small  home  for  $200.00  per 
month.  I  also  pay  for  the  utilities,  which  cost  approximately  as 

Electric;  $50.00  per  month  in  the  winter,  and  $125.00 
per  month  in  the  summer  months.  (  I  have  to  have  air- 
conditioning  because  of  my  diabetes.) 

Gas;  $150.00  per  month  in  the  winter,  and  $30.00  per 
month  in  summer. 

Water:  I  also  pay  for  water  service,  which  averages 
approximately  $33.00  per  month. 

9.  I  have  an  outstanding  water  bill  of  $217.81.  I  received 
a  water  shut-off  notice  from  the  City  Water  Department  November  20, 
1991,  demanding  payment  of  $115.00  or  my  water  service  will  be 
disconnected.     A  privatre  charity  paid  a  portion  of  the  bill  in 



December  to  prevent  the  shut-off,  however,  it  is  due  to  be  shut- 

10.  My  gas  bill  is  $249.97,  part  of  which  is  past  due,  and  I 
received  a  disconnect  notice  on  January  10,  1992. 

11.  In  the  past,  the  Michigan  Department  of  Social  Services 
has  assisted  me  with  payment  of  utilities  through  the  Emergency 
Needs  Program,  for  which  I  was  qualified. 

12.  Since  several  changes  were  made  in  that  progreun,  I  am  no 
longer  eligible  for  emergency  assistance. 

13.  I  received  some  money  for  gas  and  electricity,  however, 
I  am  not  eligible  for  anything  more  this  year  because  of  the  energy 
assistance  maximum  payments. 

14.  I  contacted  my  caseworker  at  St.  Clair  County  DSS  for 
Emergency  Assistance  benefits  to  pay  the  delinquent  water  bill.  In 
the  past,  I  have  received  emergency  needs  benefits  to  pay  overdue 
water  and  other  utility  bills,  as  I  had  met  all  the  eligibility 
requirements  effective  prior  to  December  1,  1991. 

15.  I  was  denied  emergency  assistance  to  help  pay  the 
delintjuent  water  bill  based  on  a  new  rule  called  the  "Affordable 
Housing  Rule"  and  because  of  the  new  maximum  payment. 

16.  As  I  understand  it,  the  Department  of  Social  Services 
thinks  my  rent  is  too  high  for  me  to  be  eligible  for  emergency 
assistance  under  the  programs  for  delinquent  water  bills. 

17.  I  explained  to  DSS  that  $200.00  per  month  is  the  lowest 
rental  amount  that  can  be  found  in  this  area. 

18.  On  or  about  January  6,    1992,   my  request  for  emergency 



assistance  to  pay  the  water  bill  was  denied  despite  the  fact  that 
it  was  due  to  be  shut-off  in  the  near  future.  I  received  the 
notice  on  about  January  22,  1992. 

19.  I  have  no  other  means  to  pay  this  bill. 

20.  It  is  medically  necessary  for  me  to  have  uninterrupted 
water  service.  I  am  very  anxious  and  fearful  about  my  future.  If 
the  water  is  shut  off,  I  will  be  forced  to  leave  my  home  without 
any  place  to  go. 

I  declare  that  the  above  statments  are  true  to  the  best  of  my 
information,  knowledge  and  belief. 





Mr.  DiNGELL.  Thank  you,  Ms.  McParland.  | 

Dr.  Adamany,  we  are  delighted  to  recognize  you  for  your  state-  j 

ment.  | 

We  want  to  express  our  thanks  to  you  for  your  hospitality  and  ' 

your  kindness  today.  We  hope  we  can  make  this  hearing  a  success.  | 

Dr.  Adamany  is  an  outstanding  educator,  president  of  this  universi-  | 

ty,  and  a  great  leader  in  many  activities,  including  community  ac-  | 

tivities,  here  in  the  State  of  Michigan.  i 

We  thank  you  and  we  welcome  your  statement.  j 


Mr.  Adamany.  Thank  you,  Mr.  Chairman.  j 

I  want  to  welcome  the  committee  to  our  campus  and  say  how  | 

much  I  appreciate  the  opportunity  to  testify.  I  have  a  longish  state-  I 

ment  which  I  will  ask  to  be  incorporated  in  the  record,  and  then  i 

my  oral  presentation  will  be  quite  brief  indeed,  because  I  only  have  j 

two  real  points  to  make.  i 

Mr.  DiNGELL.  Without  objection,  we  will  include  your  full  state- 
ment in  the  record. 

Mr.  Adamany.  Thank  you.  I 

I  am  here  today  as  president  of  Wayne  State  University  and  as  a  ' 
member  of  the  board  of  trustees  of  the  Detroit  Medical  Center.  I 

express  the  regrets  of  the  president  of  the  medical  center  that  he  j 

cannot  be  here  to  join  me.  I  want  to  mention  that  Dean  Rockwell  I 

Soldel,  who  is  the  dean  of  our  medical  school,  is  sitting  behind  me  ] 

and  may  help  in  response  to  some  questions.  i 

Wayne  State  University  is  one  of  the  Nation's  leading  urban  re-  | 
search  universities,  and  the  Wayne  State  Medical  School,  Mr. 

Chairman,  has  the  largest  medical  student  enrollment  on  a  single  ' 

campus  in  the  United  States.  1 

Our  partners  in  the  Detroit  Medical  Center,  which  is  an  academ- 
ic medical  center,  have  approximately  2,200  beds.  The  medical  j 
center  is  a  complex  of  five  mainly  tertiary  care  hospitals  located  on  i 
a  single  campus  in  the  heart  of  Detroit.  There  will  soon  be  a  major  i 
sixth  hospital  there  as  the  new  veterans  hospital  is  constructed 
there  with  us.  We  have  one  hospital  in  the  northwest  neighbor- 
hoods of  the  city  of  Detroit,  one  community  hospital  in  the  north- 
west suburbs,  and  various  outpatient  and  clinic  facilities.  { 

The  Detroit  Medical  Center  is  affiliated  with  Wayne  State  Uni-  I 
versity  but  not  owned  by  the  university.  Faculty  physicians  serve 
on  the  staff  of  the  hospitals,  and  medical  students  as  well  as  700 

residents  are  trained  in  the  DMC.  I  mention  this  background  be-  | 

cause  they  help  to  highlight  a  significant  mode  of  health  care  ' 
which  itself  is  an  illustration  of  the  failure  of  our  present  health 

care  system.  | 

The  failure  of  the  present  health  care  system,  including  Medic-  i 
aid,  can  be  illustrated  by  the  extraordinary  levels  of  uncompensat- 
ed and  undercompensated  care  provided  by  the  Detroit  Medical  j 
Center  and  Wayne  State  University  in  partnership.  | 

I  think  one  of  the  two  key  points  now  for  me  to  bring  to  your  | 

attention,  which  will  help  in  assessing  the  quality  of  our  health  | 

care  system  in  this  country,  is  to  point  out  that  last  year  the  De-  i 
troit  Medical  Center  hospitals  provided  $90  million  of  uncompen- 




I  231 

1  sated  care  to  the  people  of  this  city  and  metropolitan  area.  We 
I  almost — I  say  almost,  because  there  are  some  rare  exceptions — ^we 
j  almost  do  not  close  our  doors  to  the  needy  and  the  indigent  in  pro- 
I    viding  medical  care. 

j       In  addition  to  the  $90  million  of  uncompensated  care  provided  by 
j    our  medical  center  hospitals,  another  $15  million  of  totally  uncom- 
j    pensated  physician  services  were  provided  by  the  Wayne  State 
I    medical  faculty  physicians  and  residents  last  year,  and  another  $15 
I    million  provided  in  physician  and  resident  services  in  undercom- 
pensated care.  So  that  approximately  $120  million  of  uncompensat- 
ed and  undercompensated  service  was  provided  to  the  people  of 
this  city  last  year  by  the  Detroit  Medical  Center  and  Wayne  State 
University's  medical  school. 

Without  the  urban  medical  schools  in  this  country  like  ours,  and 
their  associated  hospitals,  health  care  for  the  poor  and  disadvan- 
taged in  our  cities,  large  cities,  would  simply  collapse.  What  this 
demonstrates  clearly  is  that  in  reality,  there  is  neither  a  Federal 
nor  State  health  care  safety  net  for  the  most  desperately  needy  of 
'  our  citizens.  If  there  were  such  a  safety  net,  we  would  not  be  pro- 
viding $90  million  of  hospital  service  and  $30  million  of  physician 
services  for  people  who  have  nowhere  totals  turn. 

Now,  a  part  of  my  testimony  then  details  what  you  already 
heard,  Mr.  Chairman,  which  are  many  of  the  problems  of  the  Med- 
icaid system.  I  will  not  dwell  on  those.  I  do  want  to  observe  one 
I    special  issue,  however. 

The  Detroit  Medical  Center  hospitals  in  a  succession  of  years, 
until  last  year,  lost  $9  million,  $25  million,  $38  million,  and  $45 
million  a  year,  and  brought  that  great  health  care  system  into  sub- 
stantial jeopardy. 

We  depleted  our  cash  resource  and  we  are  now  underfunding 
equipment  and  facilities  renewal  in  the  Detroit  Medical  Center  be- 
cause in  serving  the  poor  and  the  needy  in  this  city,  we  drove  our- 
selves dangerously  into  debt. 

Largely  because  of  the  voluntary  contribution  program  in  which 
we  have  been  able  to  participate  for  the  last  year,  we  had  a  nearly 
break-even  year.  We  hope  to  do  that  again  this  year  because  of  the 
voluntary  contribution  system,  but  we  do  not  think  our  long-term 
prospects  for  being  financially  viable  are  strong  absent  that  pro- 

And  this  underscores  my  first  principal  point,  that  without  spe- 
cial emergency  measures  by  the  Federal  Government,  despite  our 
!    very  best  efforts  to  serve  our  community,  we  are  not  going  to  be 
j    able  to  go  forward  into  the  future. 

'       Now,  my  second  point  is  to  address  you  in  my  role  as  a  universi- 
I    ty  president,  and  to  simply  say  to  you  that  as  we  address  the  prob- 
j    lem  of  health  care  for  our  people  generally,  and  especially  for  the 
I    poor  and  disadvantaged,  that  we  do  take  advantage  of  the  great 
academic  health  centers  located  in  our  urban  communities.  As  I 
pointed  out  previously,  these  health  centers  associated  with  our 
'    urban  universities  are  already  making  an  enormous  effort  to  pro- 
vide medical  services  to  the  indigent. 

And  now  for  a  point  no  one  wishes  to  hear.  This  is  not  care  at 
the  cheapest  rate  and  the  lowest  quality  in  the  academic  medical 
:    centers  and  the  Detroit  Medical  Center;  rather,  the  care  provided 



by  the  academic  health  centers  in  our  cities  is  high-quality  care, 
the  kind  of  care  that  is  provided  by  specialists  at  the  forefront  of 
research  and  clinical  practice  in  their  respective  fields.  It  is  care 
provided  by  residents  being  trained  by  leading  academic  physicians 
in  the  Nation.  It  is  a  quality  of  care  that  the  well-off  come  into  this 
city  to  seek. 

I  want  to  emphasize  the  point  about  the  clinics  operated  by  the 
Detroit  Medical  Center  and  Wajnie  State  University  physicians. 
There  are  no  special  clinics  for  the  well-off  or  the  fully  insured  that 
separate  them  from  the  poor.  There  are  no  facilities  that  separate 
white  patients  in  the  suburbs  from  Medicaid  or  non-paying  patients 
who  are  disproportionately  blacks  or  Hispanics  from  the  city.  As  a 
patient  with  full  coverage  under  Blue  Cross/Blue  Shield,  I  go  to  the 
same  clinics  and  wait  in  the  same  waiting  rooms  and  see  the  same 
physicians  that  serves  our  poorest  citizens. 

There  are  other  advantages  to  using  our  health  centers  as  part  of 
the  solution  to  the  Medicare  problem.  These  centers  train  M.D.  stu- 
dents and  residents,  and  it  is  vitally  important  for  those  entering 
the  medical  profession  to  have  some  direct  experience  in  working 
with  the  disadvantaged. 

It  is  important  that  they  have  direct  experience  with  the  special 
illnesses  and  pathologies  of  the  poor.  And  it  is  important  that  the 
people  who  will  be  the  next  generation  of  health  care  providers  in 
this  society  understand  through  practice  the  important  challenges 
imposed  by  health  care  in  urban  settings. 

Mr.  Chairman,  I  would  make  the  same  comments  about  research: 
It  also  adds  to  health  care  costs.  If  we  are  going  to  conquer  those 
illnesses  and  medical  injuries  that  are  especially  present  in  urban 
centers  and  among  the  poor,  then  academic  physicians  who  conduct 
the  vast  majority  of  this  Nation's  medical  research,  must  know 
these  threats  to  health  through  their  practice,  and  must  help  ad- 
dress them  through  research  among  urban  populations.  j 

This  kind  of  medical  care  is  not,  as  I  have  said  before,  the  kind  of  | 
health  care  service  provided  by  private  or  public  insurance  pro-  j 
grams  whose  sole  measure  of  success  is  low  cost  and  high  volume.  | 
Providing  first-class  medical  care  to  our  fellow  citizens  who  are 
poor  or  disadvantaged,  training  physicians  to  work  with  these  pa-  ' 
tients  and  instilling  a  commitment  among  physicians  to  the  poor 
and  the  disadvantaged  and  conducting  research  that  will  help  us  | 
address  the  special  pathologies  of  the  urban  poor  is  not  the  lowest-  I 
dollar  medical  care  that  distant  planners  and  policy  analysts  might  | 
concede.  At  the  same  time,  it  need  not  be  the  same  high-cost  medi-  | 
cal  care  that  so  many  of  our  insurance  plans  now  support.  j 

I  would  suggest  that  we  move  forward  in  steps.  I  would  suggest 
that  the  Federal  Government  and  the  States  should  directly  fund  ! 
managed  care  programs  on  the  model  of  HMO's  that  would  serve  | 
the  urban  poor  and  that  would  be  built  around,  and  if  possible,  i 
managed  by  urban  academic  health  centers,  public  and  private  hos- 
pitals, public  and  private  medical  schools.  | 

I  believe  we  would  find  means  to  provide  quality  care  at  reeisona- 
ble  rates.  We  would  soon  discover  that  academic  hospitals  and  phy- 
sicians could  engage  in  preventive  programs,  for  which  there  is  ] 
now,  of  course,  no  budgetary  support,  in  preventive  programs  that 
would  lower  overall  health  care  costs. 


After  all,  if  a  poor  person  is  continuously  affiliated  with  the 
same  health  care  institution  and  the  same  group  of  physicians, 
they  will  not  be  driven  to  seek  care  only  when  illness  becomes  ex- 
treme, and  to  seek  it  mainly  through  emergency  rooms  where  costs 
are  highest. 

Moreover,  the  present  network  of  urban  hospitals,  especially  the 
urban  academic  hospitals,  already  have  the  capacity  to  provide  a 
high  volume  of  care  because  they  have  the  facilities  and  the  equip- 
ment in  place. 

Well,  I  have  some  additional  comments,  Mr.  Chairman,  in  my 
written  statement,  but  I  want  to  point  out  that  many  of  the  solu- 
tions to  the  problem  now  being  proposed  would  mistakenly  turn 
their  backs  on  the  great  urban  health  centers  in  our  distressed 
cities  that  are  already  deeply  involved  in  providing  care  for  the  dis- 

I  believe  instead  we  should  build  on  that  network  of  existing 
health  facilities,  those  dedicated  residents  and  faculty  members  al- 
ready providing  care  to  the  poor  at  little  or  no  reimbursement. 
This  cannot  be  the  cheapest  care  we  can  achieve,  but  a  mature  and 
civilized  society  does  not  determine  its  health  care  only  on  the 
basis  of  cost. 

I  appreciate  the  opportunity  to  appear  today,  and  I  hope  we  have 
shed  some  light  on  a  little  different  aspect  of  care  for  those  who 
have  no  other  place  to  turn,  and  perhaps  offered  at  least  a  window 
of  potential  for  serving  our  disadvantaged  populations  through  ex- 
isting networks  of  physicians  and  hospitals  who  are  already  partici- 
pating in  this  responsibility. 

[Testimony  resumes  on  p.  251.] 

[The  prepared  statement  of  Mr.  Adamany  follows:] 


Testimony  of  David  Adamany 
President,  Wayne  State  University 

Subcommittee  on  Oversight  and  Investigations 
of  the 

Committee  on  Energy  and  Commerce 
United  States  House  of  Representatives 

February  28,  1992 

Mr.  Chair,  other  members  of  the  Committee,  and  members  of  Michigan 
delegation,  I  am  David  Adamany,  the  President  of  Wayne  State  University 
and  a  member  of  the  Board  of  Trustees  of  the  Detroit  Medical  Center. 

Wayne  State  University  is  one  of  the  nation's  leading  urban  research 
universities.  The  Wayne  State  Medical  School  has  the  largest  medical  student 
enrollment  on  a  single-campus  in  the  United  States.  The  Detroit  Medical 
Center  (DMC)  is  an  academic  medical  center  with  approximately  2,200  beds. 
It  consists  of  a  complex  of  five  tertiary  care  hospitals  located  on  a  single 
campus  in  the  heart  of  Detroit,  one  hospital  in  northwest  Detroit,  one 
community  hospital  in  the  northwest  suburbs  and  various  outpatient  and  clinic 
facilities.    The  Detroit  Medical  Center  is  affiliated  with  Wayne  State 


Page  2  Testimony  of  David  Adamany 

University,  but  is  not  owned  by  the  University.  Faculty  physicians  serve  on 
the  staff  in  DMC  hospitals,  and  medical  students  as  well  as  700  residents  are 
trained  in  the  DMC. 

The  failure  of  our  present  health  care  system,  including  Medicaid,  can  be 
illustrated  by  the  extraordinary  levels  of  uncompensated  and 
undercompensated  care  provided  by  the  Detroit  Medical  Center/Wayne  State 
University  partnership.  Last  year  more  than  $90  million  of  totally 
uncompensated  care  was  provided  by  the  Detroit  Medical  Center.  Another 
$15  million  of  totally  uncompensated  physician  services  was  provided  by 
Wayne  State  faculty  physicians  and  residents,  with  still  another  $15  million 
in  undercompensated  health  care,  where  reimbursement  fell  short  of  health 
delivery  costs,  also  provided  by  these  physicians  and  residents.  Without  our 
urban  medical  schools  and  associated  hospitals,  health  care  for  the  poor  and 
disadvantaged  in  our  large  cities  would  simply  collapse.  That  demonstrates 
clearly  that  there  is  neither  a  Federal  or  state  health  care  safety  net  for  the 
most  desperately  needy  among  our  fellow  citizens. 


Testimony  of  David  Adamany  Page  3 

The  Medicaid  program  is  by  far  the  nation's  most  important  program  for 
providing  financial  access  to  health  care  for  our  nation's  low  income 
population.  In  Michigan,  approximately  1,000,000  citizens  depend  on 
Medicaid  coverage  to  secure  needed  health  services  ~  services  which  they 
could  not  possibly  afford  without  this  vital  program.  However,  despite  its 
successes,  the  current  design  of  the  Medicaid  program  has  a  number  of 

From  its  inception.  Medicaid  eligibility  criteria  has  relied  on  a  concept  of  the 
"deserving  poor."  Presently,  in  order  to  qualify  for  Medicaid  coverage,  a 
person  must  meet  income  standards  which  have  eroded  to  the  point  where 
millions  of  people  below  the  Federal  government's  recognized  poverty  level 
make  too  much  money  to  qualify.  In  Michigan,  which  is  one  of  the  more 

generous  states,  only  about  70  percent  of  people  living  below  the  poverty  I 


level  qualify  for  Medicaid.  In  addition,  recipients  can  qualify  only  if  they 
have  a  low  level  of  assets.  This  often  results  in  people  spending  virtually  all  | 
of  their  life  savings  prior  to  receiving  Medicaid.  This  is  especially  difficult 

Page  4 


Testimony  of  David  Adamany 

for  senior  citizens  who  often  have  limited  assets  to  live  out  the  remainder  of 
their  lives.  Finally,  categorical  requirements  (such  as  families  with  dependent 
children,  over  age  65,  blind,  or  permanently  disabled)  result  in  huge 
differences  in  coverage,  even  for  many  who  meet  the  financial  eligibility 

Simply  stated.  Medicaid  fails  to  cover  a  significant  portion  of  the  population 
living  in  poverty,  either  because  of  the  restrictive  financial  eligibility 
standards  or  because  of  failure  to  fit  into  one  of  the  eligibility  categories. 
These  people  constitute  a  large  portion  of  the  37  million  Americans  -  over 
350,000  of  whom  live  in  Wayne  County  -  who  have  no  health  care. 

In  most  states.  Medicaid  has  become  one  of  the  largest  and  fastest  growing 
items  in  the  state  budget.  As  a  result,  many  states  have  asked  health  care 
providers  to  "subsidize"  the  program  by  establishing  payment  rates  which 
fail  to  cover  the  costs  of  providing  service.  This  situation  has  become  so 
severe  that  hospitals  and  nursing  homes  in  over  30  states  (including 


Testimony  of  David  Adamany  Page  5 

Michigan)  have  resorted  to  suing  their  respective  state  governments  for  failing 
to  live  up  to  the  legal  requirement  of  adequate  payment.  As  a  result  of  the 
legal  action  in  Michigan,  the  situation  has  improved  considerably.  However, 
with  continuing  pressure  on  state  budgets  across  the  country,  it  remains  to 
be  seen  whether  these  same  difficulties  will  be  repeated  in  the  future. 

In  many  respects,  the  problem  of  underpayment  by  Medicaid  is  even  more 
severe  with  respect  to  physician  services.  Last  year,  at  the  direction  of 
Congress,  the  Physician  Payment  Review  Commission  of  the  Department  of 
Health  and  Human  Services  and  the  National  Governors'  Association 
conducted  a  study  of  the  adequacy  of  Medicaid  physician  fees.  The  results 
of  the  study  indicated  that  Medicaid  physician  payments  in  many  states  were 
significantly  less  than  either  the  then-prevailing  charges  recognized  under  the 
Medicare  program,  or  the  fees  to  be  paid  under  Medicare's  new 
Resource-Based  Relative  Value  Scale  (RBRVS)  system. 

Page  6 


Testimony  of  David  Adamany 

Medicaid  physician  payment  rates,  in  Michigan,  were,  on  average,  62  percent 
of  Medicare  rates.  Michigan  has  recently  improved  physician  payment  rates 
by  15  percent.  This  was  funded  by  the  state's  "voluntary  contribution" 
program,  but  the  rates  will  still  be  only  71  percent  of  Medicare  levels.  These 
rates,  coupled  with  Michigan's  medical  liability  climate,  result  in  many 
physicians  being  unwilling  to  serve  Medicaid  recipients.  The  consequence 
is  that  Medicaid  patients  have  limited  access  to  physician  services  (including 
prenatal  care  and  routine  pediatric  care)  and  often  turn  to  hospital  emergency 
rooms  for  non-emergency  medical  care.  This  is  not  only  costly  to  the 
medical  care  system,  but  results  in  a  lack  of  preventive  care  for  a  population 
which  starts  out  at  greater  health  care  risk. 

Federal  mandates  have  placed  an  additional  burden  on  the  Medicaid  system. 
Unfortunately,  many  states,  including  Michigan,  have  not  been  prepared  to 
assume  the  additional  budgetary  burdens  of  these  mandates.  State  officials 
indicate  that  these  mandates  have  increased  state  Medicaid  expenditures  by 
hundreds  of  millions  of  dollars  in  recent  years. 


Testimony  of  David  Adamany 

Page  7 

The  problem  with  federal  mandates  is  exacerbated  in  Michigan  where  the 
Federal  Financial  Participation  (FFP)  rate  is  relatively  low  (approximately 
55  percent).  Thus,  while  in  some  states  the  mandates  require  the  state  to 
come  up  with  only  25  percent  of  the  cost,  our  state  must  supply  45  percent. 
Furthermore,  the  FFP  formula  seems  not  to  measure  the  health  care  needs  of 
low  income  populations  very  well,  and  the  time  lag  in  adjustments  to 
changing  economic  conditions  tends  to  create  a  "counter-cyclical"  effect—by 
the  time  the  effects  of  a  recession  are  reflected  in  the  FFP  formula,  the 
recession  is  over. 

On  a  more  positive  note,  Michigan  has  made  use  of  many  of  the  optional 
eligibility  categories,  particularly  those  for  pregnant  women  and  children. 
In  fact,  with  some  additional  supplementation  with  state  funds,  Michigan  now 
offers  coverage  for  pregnant  women  and  young  children  up  to  200  percent  of 
the  poverty  level. 


Page  8  Testimony  of  David  Adamany 

Michigan  is  one  of  those  states  that  has  utilized  "voluntary  contributions"  to 
maximize  the  state's  federal  participation  in  the  Medicaid  program.  The 
increasing  costs  of  Medicaid  programs  due  to  health  care  inflation  and  federal 
mandates  coupled  with  declining  state  revenues  and  the  sincere  desire  by  state 
governments  to  provide  needed  services  to  low-income  people  has  resulted 
in  many  states  developing  programs  to  maximize  federal  participation  through 
"voluntary  contribution"  and  provider-specific  tax  programs.  Last  year,  in 
an  effort  to  put  a  halt  to  these  types  of  programs,  the  Health  Care  Financing 
Administration  promulgated  rules  which  would  have  prohibited  most,  if  not 
all,  of  these  flexible  funding  mechanisms.  Thankfully,  Congress  (along  with 
the  National  Governors'  Association)  stepped  in  to  negotiate  a  more 
reasonable  approach. 

However,  with  the  continuation  of  a  weak  economy,  combined  with  the 
legitimate  demands  of  other  state  priorities,  we  envision  the  real  possibility 
of  another  round  of  state  crises  in  Medicaid  funding  when  the  limitations  of 
the    "Medicaid      Voluntary   Contribution   and  Provider-Specific  Tax 


Testimony  of  David  Adamany  Page  9 

Amendments  of  1991"  come  into  full  force.  These  provisions  will  not  only 
place  state  funding  in  jeopardy  through  the  limits  on  flexible  funding  sources, 
but  the  act  may  also  have  a  substantial  impact  on  hospitals,  like  ours  in  the 
Detroit  Medical  Center,  which  provide  enormous  amounts  of  care  to  the 
indigent.  These  hospitals  have  been  helped  significantly  by  the  availability 
of  "disproportionate  share  hospital"  payments.  Without  these  payments,  the 
Detroit  Medical  Center  would  not  be  able  to  continue  to  support  the  nearly 
$90  million  of  uncompensated  care  burden  which  it  currently  carries.  The 
statute  enacted  by  Congress  will,  in  Michigan,  cap  those  payments  at  their 
current  levels.  With  inflation  and  a  continuing  growth  of  the  uninsured  in 
our  community,  today's  disproportionate  share  hospital  payments  will  not  be 
sufficient  to  meet  tomorrow's  challenge. 

Medicaid  now  largely  covers  three  distinctly  different  populations:  mothers 
and  children,  the  elderly  in  need  of  long-term  care,  and  those  with  mental 
disabilities.  In  Michigan,  Medicaid  payments  for  psychiatric  care  (through 
both  public  and  private  sources  of  care)  have  been  one  of  the  fastest  rising 


Page  10  Testimony  of  David  Adamany 

components  of  expenditures.  In  many  ways,  these  funds  have  replaced  the 
state's  historical  responsibilities  for  funding.  In  many  other  states,  long-term 
care  for  the  elderly  consumes  50  and  even  60  percent  of  Medicaid 
expenditures.  In  Michigan,  this  percentage  in  approximately  25  percent.  To 
a  significant  extent,  this  has  enabled  Michigan  to  continue  to  provide  a 
relatively  broad  range  of  benefits  to  other  Medicaid  recipients,  although  this 
past  year  saw  some  curtailment  in  that  ability.  Michigan  is  able  to  provide 
these  services,  in  part,  by  establishing  inadequate  reimbursement  rates  for 
long-term  care  providers  (which,  as  I  indicated  earlier,  ultimately  forced  legal 
action),  and,  in  part,  by  severely  restricting  the  supply  of  nursing  care 
facilities  through  its  Certificate  of  Need  program.  As  the  senior  population 
continues  to  grow  (particularly  at  the  high  end  of  the  age  spectrum)  and 
anti-regulatory  pressures  grow,  the  demand  for  Medicaid  dollars  for 
long-term  care  in  Michigan  will  clearly  heighten,  placing  additional  stresses 
on  an  already  fragile  system. 


Testimony  of  David  Adamany  Page  11 

Medicaid  is  particularly  affected  by  what  some  have  called  the 
"medicalization  of  social  problems."  We  see  increasing  amounts  of  dollars 
under  Medicaid  going  to  treat  the  results  of  other  societal  failures  - 
inadequate  education,  poor  nutrition,  violence  in  our  neighborhoods  and  on 
our  roadways,  substance  abuse,  lack  of  affordable  housing,  and  sexual 
practices  which  result  in  exposure  to  disease  and  in  unprepared  parenthood. 
The  health  care  system  is  all  too  often  called  upon  to  "pick  up  the  pieces"  in 
an  increasingly  distressed  urban  community.  Not  surprisingly,  the  cost  of 
health  care  continues  to  rise  at  alarming  rates. 

My  remarks  thus  far  have  focused  on  the  problems  and  obstacles  facing  our 
health  care  delivery  system  and,  in  particular,  the  special  problems  we  face 
in  our  urban  centers.  I  would  now  like  to  share  with  you  some  of  the  issues 
I  hope  you  will  take  into  consideration  as  you  look  to  ways  to  improve  the 
nation's  health  care  system. 

Page  12 


Testimony  of  David  Adamany 

!  From  my  perspective  as  a  university  president,  I  would  strongly  urge  that  as 
j    we  address  health  care  for  the  poor  and  disadvantaged,  we  take  advantage  of 

!the  great  academic  health  centers  located  in  our  urban  communities.  As  I 
have  previously  pointed  out,  these  health  centers  associated  with  our  urban 
I    universities  are  already  making  enormous  efforts  to  provide  medical  services 
j    to  the  indigent.   This  is  not  care  at  the  cheapest  rate  and  lowest  quality. 
Rather,  the  care  provided  by  the  academic  health  centers  in  our  cities  is  high- 
quality  care,  the  kind  of  care  that  is  provided  by  specialists  at  the  forefront 
I    of  research  and  clinical  practice  in  their  respective  fields.  It  is  care  provided 
by  residents  being  trained  by  the  leading  academic  physicians  in  the  nation. 
It  is  a  quality  of  care  that  the  well-off  seek  out. 

I  want  to  emphasize  this  point,  Mr.  Chairman.  In  the  Detroit  Medical  Center 
and  the  clinics  operated  by  Wayne  State  University  physicians.  There  are  no 
special  clinics  for  the  well-off  or  the  fully  insured  that  separate  them  from  the 
poor,  there  are  no  facilities  that  segregate  white  patients  from  the  suburbs 
from  Medicaid  or  nonpaying  patients,  who  are  disproportionately  poor  blacks 


Testimory  of  David  Adamany 

Page  13 

or  Hispanics  from  the  City.  As  a  patient  with  full  coverage  under  Blue 
Cross/Blue  Shield,  I  go  to  the  same  clinics  and  sit  in  the  same  waiting  rooms 
and  am  served  by  the  same  physicians  that  see  our  poorest  and  most 
vulnerable  citizens. 

There  are  other  advantages  to  using  our  great  urban  academic  health  centers 
as  part  of  the  solution.  They  train  M.D.  students  and  residents.  And  it  is 
vitally  important  that  those  who  are  entering  the  medical  profession  have 
direct  experience  in  working  with  the  disadvantaged,  that  they  have  direct 
experience  with  the  special  illnesses  and  pathologies  of  the  poor,  and  that 
they  understand  through  practice  the  important  challenges  posed  by  health 
care  in  urban  settings. 

I  would  make  the  same  comments  about  research,  Mr.  Chairman.  If  we  are 
going  to  conquer  those  illnesses  and  those  medical  injuries  that  are  especially 
present  in  urban  centers  and  among  the  poor,  then  academic  physicians—who 
conduct  the  vast  majority  of  this  nation's  medical  research-must  know  these 


Page  14  Testimony  of  David  Adamany 

threats  to  health  through  their  practice  and  must  help  address  them  through 
research  among  urban  populations. 

This  kind  of  medical  care  is  not,  Mr.  Chairman,  the  kind  of  health  service 
provided  by  private  or  public  insurance  programs  whose  sole  measure  of 
success  is  low  cost  and  high  volume.  Providing  first  class  medical  care  to 
our  fellow  citizens  who  are  poor  or  disadvantaged,  training  physicians  to 
work  with  these  patients  and  instilling  a  commitment  to  them  among  the  next 
generation  of  doctors,  and  conducting  research  that  will  help  us  address  the 
special  pathologies  of  the  urban  poor  is  not  the  lowest  dollar  medical  care 
that  distant  planners  and  policy  analysts  might  conceive. 

At  the  same  time,  it  need  not  be  the  same  high  cost  medical  care  that  so 
many  of  our  insurance  plans  now  support.  I  would  suggest  that  we  move 
forward  in  steps.  The  federal  government  and  the  states  should  directly  fund 
managed  care  programs,  on  the  model  of  HMOs,  that  would  serve  the  urban 
poor  and  that  would  be  built  around  (and  where  possible,  managed  by)  our 


Testimony  of  David  Adamany  Page  15 

urban  academic  health  centers-public  and  private  hospitals,  public  and 
private  medical  schools.  I  believe  we  would  find  means  to  provide  quality 
care  at  reasonable  rates.  We  would  also  soon  discover  that  academic 
hospitals  and  physicians  could  engage  in  preventive  programs  that  would 
lower  overall  health  care  costs.  After  all,  if  a  poor  person  is  continuously 
affiliated  with  the  same  health  care  institution  and  the  same  group  of 
physicians,  they  will  not  be  driven  to  seek  care  only  when  illness  becomes 
extreme  and  to  seek  it  mainly  through  emergency  rooms,  where  costs  are 
highest.  Moreover,  our  large  urban  hospitals  and  clinics  have  the  capacity 
to  provide  high  volumes  of  care  because  they  already  possess  the  facilities 
and  equipment.  Such  volumes  of  patients  are  not  only  cost  effective,  but  they 
assure  that  physicians  in  training  will  develop  both  skill  and  commitment  in 
providing  care  to  the  urban  poor;  and  they  will  also  provide  settings  in  which 
research  to  address  the  special  medical  conditions  of  the  urban  poor  can  be 
effectively  conducted. 



j  249 

Page  16  Testimony  of  David  Adamany 


j  It  would  be  a  mistake,  in  my  view,  to  turn  our  backs  on  the  great  academic 
health  centers  in  our  distressed  cities.  They  are  already  deeply  involved  in 
providing  care  for  the  disadvantaged,  and  we  should  build  on  what  they  do 
and  what  they  know.  This  will  not  be  the  cheapest  care  that  can  be 
^  conceived,  but  I  am  not  sure  a  mature  and  decent  society  bases  its  public 
!  policies  on  the  single  criterion  of  cost.  At  the  same  time,  it  will  be  care  at 
reasonable  costs  because  of  managed  care  arrangements,  high  volume,  the  use 
of  existing  facilities,  and  preventive  medical  programs. 


I  I  hope  that  as  we  move  forward  in  reviewing  how  our  health  care  system  will 
serve  all  of  the  poor,  our  federal  and  state  governments  will  build  alliances 
with  our  urban  academic  health  centers  by  entering  into  experiments  for 
managed  care  programs  that  they  could  administer. 

In  conclusion,  I  would  like  to  reiterate  that  we  are  indeed  in  need  of  reforms 
in  health  care  and  Medicaid.  However,  there  is  much  that  can  be  salvaged 
from  the  current  system.  We  can  build  upon  the  available  infrastructure. 


Testimony  of  David  Adamany  Page  17 

Perhaps  the  federal  government  can  provide  incentives  to  challenge  states  and 
academic  medical  centers  to  develop  special  managed  care  arrangements  that 
provide  high  quality  care  while  bringing  health  care  costs  under  control. 

Mr.  Chairman,  thank  you  for  allowing  me  the  opportunity  to  submit 
testimony  regarding  the  issue  of  Medicaid  and  public  health  policy.  We  at 
Wayne  State  University  and  the  Detroit  Medical  Center  are  committed  to 
doing  what  we  can  to  assist  in  accomplishing  this  important  task. 


Mr.  DiNGELL.  Thank  you,  Doctor. 

I  recognize  my  good  friend  and  colleague,  Mr.  Upton. 

Mr.  Upton.  Thank  you,  Mr.  Chairman. 

I  would  like  to  take  a  moment  to  introduce  two  very  good  friends 
of  mine,  Jim  Foster,  president  of  the  Three  Rivers  Area  Hospital, 
as  well  as  Bob  McDonough. 

Jim  Foster  has  played  a  very  active  part  in  trying  to  improve 
health  care,  not  only  in  the  area  that  I  represent,  Three  Rivers,  in 
St.  Joe  County,  but  really  throughout  our  State. 

I  would  note  for  those  of  you  who  are  here  today  that  Three 
Rivers  is  a  community  very  much  along  the  same  lines  as  the 
Chairman's — a  rural  area,  border  county  with  Indiana  and  Ohio, 
and  they  have  many  concerns  that  are  well  addressed  in  this  par- 
ticular hearing,  which  focuses  on  rural  health  care. 

Bob  McDonough,  who  is  former  mayor  of  Three  Rivers,  current 
board  member  of  the  hospital,  Upjohn  employee,  long  committed  to 
public  service  and  good  government,  and  also  improving  the  qual- 
ity of  health  care,  I  am  sure  that  the  remarks  he  may  make  would 
be  important,  too.  I  welcome  you  both  to  the  committee  today. 


Mr.  Foster.  Thank  you  for  asking  us  to  share  our  experiences 
with  the  committee.  I  am  Jim  Foster.  I  am  the  president  of  Three 
Rivers  Area  Hospital.  I  moved  to  Michigan  during  the  1980's  and  I 
am  very  proud  and  pleased  to  be  a  part  of  your  great  State.  It  is  a 
great  experience  for  me. 

We  have  provided  written  testimony,  and  I  would  ask,  if  I  could, 
that  that  be  entered  into  the  record. 

Mr.  DiNGELL.  Without  objection. 

Mr.  Foster.  Three  Rivers  Area  Hospital  is  a  small  hospital  in 
southwestern  rural  Michigan.  Our  economy  is  agricultural  and 
small  industry.  We  are  facing  a  number  of  the  same  challenges 
that  a  large  number  of  other  small  rural  hospitals  are  facing  in 

I  think  first  in  our  list  of  priorities,  financial  viability  is  one  of 
our  major  challenges.  We  have  had  some  recent  assistance  in  meet- 
ing that  challenge  in  the  geographic  classification  for  Medicare, 
which  was  beneficial  to  us,  and  also  in  application  of  the  board 
amendment  to  Medicare  reimbursement  in  our  State. 

Second,  a  very  important  challenge  for  us  at  this  time  is  physi- 
cian availability,  not  only  in  Three  Rivers  but  also  in,  I  would  say, 
all  rural  communities  in  Michigan.  We  recently  had  a  hospital 
survey  of  smaller  hospitals,  1991,  done  near  the  end  of  last  year. 
Ninety-five  percent  of  our  hospitals  in  that  category  represent  a 
shortage  of  physicians,  a  difficulty  of  having  physician  services 
within  their  communities. 

The  third  thing  I  think  is  very  important,  and  that  is  that  we  be 
able  to  move  forward  as  our  smaller  hospitals  in  converting  to  pro- 
vide the  care  that  is  needed  so  that  we  will  be  current.  That  con- 
version requires  that  we  have  a  payment  system,  a  reimbursement 
system,  that  will  allow  us  the  timeframe  to  plan,  to  execute  that 
plan,  and  to  exercise  some  run  on  those  new  investments. 


A  good  example  is  an  Inpatient  Rehabilitation  Program,  which 
Three  Rivers  area  hospital  opened  this  past  year.  We  proceeded 
through  the  initial  year  with  very  limited  reimbursement,  and  now 
are  at  the  point  of  being  a  distinct  part  and  unit  under  the  Medi- 
care program,  a  factor  that  will  be  of  value  to  us  in  providing  acute 
preventive  care  within  Three  Rivers  area. 

Many  of  the  communities  in  Michigan  are  presently  depending 
upon  such  diversification  in  order  to  maintain  health  care  in  their 
communities.  One  case  in  point  has  been  the  substance  abuse  reha- 
bilitation which  in  the  past  has  been  reimbursed  to  hospitals,  being 
an  important  part  of  the  revenue  stream  to  that  hospital.  I  don't 
know  that  we  lost  any  hospitals  as  that  reimbursement  was  termi- 
nated the  year  before  last,  I  believe,  but  it  was  a  significant  factor 
for  many  of  our  hospitals. 

Presently,  long-term  care  is  provided  in  some  of  these  hospitals. 
And  I  am  emphasizing  hospitals  because  I  believe  them  to  be  the 
center  of  the  present  health  care  delivery  system.  Without  a  hospi- 
tal, physicians  are  very  reticent  to  become  associated  with  the  com- 
munity. Without  a  hospital,  the  ancillary  services,  the  emergency 
services  are  less  likely  to  be  available  in  that  area. 

I  want  to  just  ask  that  you  consider  the  impact  of  reducing  the 
payment  of  costs  in  these  associated  or  diversified  services  as  you  | 
move  toward  solutions  which  we  all  seek  and  value. 

Finally,  I  think  that  we  as  a  hospital  have  as  a  significant  part  of 
our  mission  the  promotion  of  wellness  and  the  development  of 
health  in  our  area,  and  I  would  love  to  show  you  some  detail  on  ! 
that,  but  I  want  to  keep  my  comments  very  brief.  But  simply  to  say 
that  we  do  a  large  amount  of  community  education,  of  prevention  [ 
and  screening,  and  operating  fitness  programs,  which  are  essential-  j 
ly  break-even  types  of  services,  but  which  we  think  promote  ' 
healthy  growth  and  wellness  concepts  to  our  citizenry.  \ 

I  would  like  to  ask  really  four  things,  if  I  may  make  suggestions,  j 
and  I  understood  that  may  be  part  of  the  agenda.  First  of  all,  I  [ 
think  to  support  those  physicians  who  are  presently  established  in  | 
rural  areas  as  being  the  point  of  first  contact  for  all  citizens.  I  ) 
think  that  is  very  much  an  important  point  for  the  Medicaid  popu-  j 
lation.  [ 

Furthermore,  to  encourage  or  to  develop  ways  that  new  physi-  \ 
cians  will  consider  our  areas.  Just  recently  I  spoke  for  the  residents 
in  Dr.  Adamany's  program  here.  He  will  be  finishing  soon.  We  [ 
were  very  anxious  to  have  him  join  us  to  provide  care  at  Three  i 
Rivers.  But  we  don't  have  group  practice  in  an  area  where  there  y 
are  one  or  two  specialists  in  a  given  area.  He  is  going  to  go  as  a  ■ 
physician  into  a  group  practice  so  he  can  have  the  security  and  the  f 
opportunities  of  that  practice.  l 

But  we  don't  have  residents  presently  working  in  small  and  f 
rural  hospitals.  And  I  think  that  is  a  point  that  would  benefit  us  i 
greatly,  if  they  became  aware  of  the  advantages  of  working  in  our 
type  of  setting.  ^ 

I  would  ask  again  that  we  have  the  support  of  the  government 
programs  in  establishing  new  services.  Outpatient  services  are  } 
booming  in  all  of  our  small  rural  hospitals.  The  payment  rates  in  p 
the  Medicaid  program  is  less  than  40  cents  per  dollar  of  cost.  { 

Mr.  DiNGELL.  Less  than  40?  i 


Mr.  Foster.  That  is  the  information  I  have  from  a  number  of 
chief  financial  officers  in  Michigan's  smaller  hospitals. 

Mr.  DiNGELL.  The  reason  I  raise  that  is,  it  is  computed  to  be  55 
cents  on  the  dollar. 

Mr.  Foster.  Chairman  Dingell,  I  would  not  argue  the  point  with 

Mr.  CoNYERS.  Give  him  a  nickel  or  a  dime. 

Mr.  Foster.  I  asked  four  chief  financial  officers  last  week,  and 
they  are  telling  me  it  is  37  to  39  cents  on  the  dollar  of  cost  in  the 
outpatient  programs  for  Medicaid  reimbursement. 

Mr.  Dingell.  That  is  outpatient? 

Mr.  Foster.  For  outpatient  services. 

Mr.  Dingell.  How  about  inpatient? 

Mr.  Foster.  Inpatient,  I  believe,  is  in  the  neighborhood  of  70  per- 
cent of  our  cost  in  inpatient  care. 

Mr.  Dingell.  So  if  you  average  the  two,  you  come  out  with  some- 
thing around  the  number  I  gave? 

Mr.  Foster.  That  is  correct. 

Mr.  Dingell.  Forgive  me. 

Mr.  Foster.  The  point  is  that  outpatient  services  is  the  direction 
we  need  to  go.  Our  hospital  was  built  in  1985,  1986,  and  we  moved 
in  in  1987,  prior  to  my  coming.  It  is  a  real  advantage  to  come  into 
a  brand-new  facility,  and  I  credit  the  board  with  their  courage  in 
going  forward  with  that. 

My  point  is  we  need  to  modify  the  facility  in  order  to  handle  a 
very  heavy  outpatient  volume.  We  want  to  go  to  an  outpatient 
volume.  People  would  prefer  to  be  at  home  and  come  for  the  specif- 
ic diagnostics  and  therapeutics  that  they  need. 

We  are  not  encouraged  to  make  that  kind  of  financial  reinvest- 
ment for  the  kind  of  return  we  are  getting  in  this  field  of  the  pro- 
gram. I  encourage  the  suggestion  that  cost  shifting  is  how  we  are 
doing  that.  We  are  getting  pressure  on  that  side  as  well. 

I  am  longer  winded  than  I  intended  to  be,  and  I  just  want  to  ask 
for  two  more  things.  One  is  for  strong  reform  in  the  area  of  medi- 
cal liability.  It  is  a  significant  cost,  and  I  think  my  friends  from 
Michigan  Hospital  Association  will  go  into  that  some  more,  but  I 
think  it  is  as  much  an  intrusion  for  physicians  especially  and  for 
other  health  professionals  to  handle,  because  there  is  such — it  is 
such  a  specter.  It  is  such  a  strong  concern  on  their  part. 

Finally  then  I  think — and  this  is  something  I  asked  for  for 
myself  in  the  intensity  of  day-to-day  work  in  dealing  with  the  oper- 
ations of  the  hospital,  with  the  possibility  of  expanding  or  diversify- 
ing. It  is  difficult  to  stay  informed  and  in  touch  with  new  develop- 
ments and  new  forums  that  are  available  to  us. 

And  I  would  give  a  case  in  point  that  rural  health  clinics  were 
devised  and  authorized,  it  is  my  understanding,  in  1977.  We 
learned  of  them  about  2  years  ago,  have  considered  that  as  a  possi- 
bility for  St.  Joseph  County,  but  only  recently  have  we  had  some- 
one in  the  State  government  who  is  knowledgeable  about  that  pro- 
gram and  could  assist  us. 

58-688  0-92-9 


That  would  be  the  coordinator  now  of  rural  health  clinics  and 
federally-qualified  health  centers  under  the  Department  of  Public 

Those  are  the  things  I  would  request,  and  I  will  stop  at  that 
point,  and  thank  you  for  allowing  me  to  come. 
[Testimony  resumes  on  p.  267.] 

[The  prepared  statement  and  attachment  of  Mr.  Foster  follow:] 



Presented  by 
James  R.  Foster 


I  am  James  R.    Foster,    President  of  Three  Rivers  Area  Hospital 
(TRAH) ,   a  60  bed  community  hospital  located  approximately  20 
miles  south  of  Kalamazoo.     TRAH  is  operated  as  a  hospital 
authority  under  Michigan  Public  act  47   of  the  Public  Acts  of 
1945.     Included  within  the  Hospital  Authority  are  the  City  of 
Three  Rivers  and  four  adjacent  townships.     TRAH  has  an  operating 
budget  of  approximately  $17  million.     Additional  information 
concerning  TRAH   is  presented  in  Attachment  2. 

We  appreciate  the  opportunity  to  appear  before  the  Subcommittee 
today  to  share  our  insights  on  the  challenges  facing  rural 
hospitals,    and  to  offer  our  suggestions  as  to  possible  remedial 
action  which  Congress  may  wish  to  consider.      I  am  joined  by  Bruno 
J.   Masnari,    Chairman  of  the  TRAH  Authority  Board,    Robert  T. 
McDonough,    Secretary /Treasurer  of  the  Authority  Board,  and 
Lav/rence  C.   Herman,   Past  Authority  Board  Chairman  and  Executive 
Director  of  Community  Mental  Health  for  St.   Joseph  County, 
Michigan.     Additional  information  on  these  individuals  is. 
presented  in  Attachment  1. 


TRAH  is  relatively  small,    but  we  face  nearly  all  the  challenges 
presently  encountered  by  hospitals  throughout  the  United  States. 
In  many  ways,   the  Three  Rivers  area  is  a  microcosm  of  the 
industrial  heartland  of  this  country.     We  are  a  historically 
prosperous  community  that  is  experiencing  a  deteriorating 


industrial  base,   an  increasingly  less  affluent  population,   and  an 
increasing  demand  for  health  care  services  due  primarily  to  the 
shift  in  demographics  to  an  older  population. 

We  want  to  focus  today  in  three  critical  challenges  facing  TRAH, 
Medicaid/Medicare  reimbursement,    access  to  health  care  for  the 
uninsured,    and  m.edical  liability  reform. 

A.     Medicaid/Medicare  Reimbursement 

The  most  critical  problem  facing  rural  hospitals  in  Michigan  is 
financial  solvency.      It  is  well  known  that  Medicaid,    and  to  a 
less'er  extent  Medicare,   reimbursement  levels  are  not  adequate  to 
support  the  long  term  viability  of  rural  hospitals.     At  TRAH,  our 
patient  mix  is  approximately  70%  Medicaid/Medicare,  25% 
Commercial  Insurance/Blue  Cross,    and  5%  self  pay.  Historically, 
we  have  been  able  to  cover  our  Medicaid/Medicare  shortfall  by 
cost-shifting  to  commercial  insurers.     This  was  a  financial  fact 
of  life  which  we  disliked,   but  for  which  there  was  no 
alternative.     As  health  care  costs  for  businesses  have  risen 
during  the  past  few  years,   we  have  found  it  increasingly 
difficult  to  recover  the  Medicaid/Medicare  shortfall  by  cost- 
shifting.     The  result  has  been  that  most  rural  hospitals  in 
Michigan  have  experienced  deficits  for  the  last  three  years. 
Fortunately,   TRAH  has  been  able  to  operate  at  about  a  "break 
even"   level,    but  without  an  increase  in  Medicaid/Medicare 
reimbursement,   the  long  term  financial  viability  of  our 



institution  is  very  much  in  doubt. 

B.  Access  to  Health  Care  for  the  Uninsured 

Due  to  the  loss  of  manufacturing  jobs  in  our  area  and  both  the 
resultant  increase  in  unemployment  and  shift  to  lower-paying 
service  sector  jobs,   we  have  experienced  a  significant  increase 
in  the  number  of  families  without  medical  insurance.     Many  of 
these  people  are  working  2  or  3  part-time  jobs  just  to  make  ends 
meet.     For  TRAH  this  has  translated  into  an  increased  utilization 
of  our  Emergency  Room  as  a  provider  of  primary  health  care.  Not 
only  is  this  prohibitively  expensive,   but  people  often  delay 
see)<*ing  medical  care  for  relatively  minor  ailments  until  they 
have  progressed  into  life-threatening  emergencies.      In  one  of  the 
richest  societies  in  the  world,    it  is  difficult  to  understand  how 
an  adult  could  not  have  access  to  necessary  health  care,    but  it 
is  inexplicable  when  the  victims  are  children.     Attachment  3 
illustrates  this  access  issue. 

C.  Medical  Liability  Reform 

Michigan  has  the  dubious  distinction  of  having  the  highest 
medical  liability  insurance  premiums  in  the  Unites  States  due  to 
unconscionably  high  medical  malpractice  injury  awards.     This  is 
good  news  for  trial  lawyers,    but  bad  news  for  women  seeking 
obstetric  care.     In  rural  Michigan,    it  is  becoming  commonplace 
for  community  after  community  to  go  without  an  obstetrician. 
Most  rural  hospitals  see  their  primary  missions  as  providing 


first  rate  eiriergency  care  and  delivering  babies.      In  the  current 
health  care  climate,    it  is  becoming  increasingly  difficult  for 
rural  hospitals  to  achieve  either  of  these  missions. 


We  believe  that  community  hospitals  in  small  towns  are  a  vital 
part  of  the  U.S.  health  care  system.     With  enlightened  public 
policy,   they  can  once  again  thrive.     If  left  unattended,  they 
will  perish.     We  believe  the  following  commonsense  solutions  will 
go  a  long  way  towards  assuring  the  viability  of  rural  community 
hospitals : 

1.  Adjust  expenditure  priorities  within  the  Health  Care 
Financing  Administration  such  that  Medicaid/Medicare 
reimbursement  rates  for  rural  hospitals  cover  costs  and  provide 
modest  operating  margins  so  as  to  assure  the  financial  solvency 
of  well-managed  institutions. 

2.  Rather  than  focusing  Congressional  attention  solely  on 
providing  health  insurance  for  the  uninsured,   consider  creation 
of  competitive  community  block  grants  to  encourage  development  of 
alternative  approaches  to  health  care  delivery  for  the  poor  and 
near  poor.      It  is  sometimes  overlooked  that  it  is  not  health 
insurance  that  is  needed  by  these  people  so  much  as  it  is  health 
care  they  need. 


3.  Create  incentives  for  physicians  to  provide  care  either  free 
of  charge  or  at  substantially  reduced  rates  for  the  poor  and  near 
poor.     Congress  should  consider  providing  physicians  with  tax 
credits,    and  exempt  from  taxation  income  earned'-by  physicians  for 
care  provided  at  substantially  reduced  rates. 

4.  Enact  Federal  medical  liability  reforms,    especially  in  the 
areas  of  obstetrics  and  emergency  care,   that  v;ill  preempt  state 
laws  and  which  will  strike  a  fair  balance  between  the  interests 
of  injured  parties  in  reasonable  compensation  and  the  interests 
of  society   in  assuring  the  availability  of  essential  medical 
services . 


Again,   we  thank  the  Subcommittee  for  inviting  our  participation 
in  this  hearing.     We  look  forward  to  working  with  Members  of  the 
Subcommittee  or  their  staff  on  public  policy  initiatives  that  may 
result  from  these  hearings. 


Attachment  2 

Three  Rivers  Area  Hospital  Description 
Three  Rivers,  Michigan 

Three  Rivers  Area  Hospital   is  a   60  bed  genera 1 -acute  hospital 
operated  as   a  hospital   authority  under  Michigan  Public  Act  47  of 
the  Public  Acts  of   1945  since  transfer   from  the  City  of  Three 
Rivers  in   1979.     The  Hospital  experienced  a  severe  financial 
crisis  prior  to  the  transfer  and  has  since  recovered  financially, 
built  and   inhabited  new  physical  plant   in   1907   and  has 
established  financial  viability.     The  success  of  the  Hospital  is 
directly   attributab]e  to  the  strength,    courage  and   judgement  of 
the  Authority  Board  v/ith  Quorum  Health  Resources  of  Nashville 
Tennessee  providing  executive,    financial  and  operations 
leadership   since  1980. 

Challenges  to  the  Hospital   include:    financial  losses  on  patient 
care,    recruitment  of  healthcare  professionals,   ability  to 
diversify   into  healthcare  delivery  and  increased  operating  and 
insurance  costs  due  to  litigious  patient  attitudes. 

During   1991,    the  Hospital   successfully  opened  an  eleven  bed 
inpatient  rehabilitation  unit,   a   "  distinct  part"  unit  under 
the  Medicare  program.     Outpatient  services  are  extremely  busy  and 
have  greatly  exceeded  the  capacity  established  in  the  new 
facility  designed  in  1987. 


Attachment  2 

Conversion   of  diagnostic  and  therapeutic  spaces  to  better  serve 
outpatients  will  probably  require  construction  well   in  excess  of 
the  Certificate  of  Need  threshold,    an  unnecessar-y  and  onerous 
deterrent  to  effectively  serve  this  shift   in  healthcare  delivery. 

Psychiatric   inpatient  care  has  been  considered  and  granted  a 
Certificate  of  Need  with  a   $1.1  million  conversion  and 
construction  cost;    uncertainty  of  reimbursement   led  the  Authority 
Board  to  decline  establishing  this  needed   service   in  Three 
Rivers,    Michigan.    Physician  services  are   inaccessible  to  many 
patients   in  the  llospita],  service  area.      Specialties  needed 
include:      Pediatrics,    Obstetr ics/Gynecology ,    Orthopedics  and 
Family   Practice.    Nev;  physicians  have   found  successful 
practices  here.      But,    physicians   in  training  have  no  experience 
and  develop  no  attraction  to  the  broad  clinical  requirements  of  a 
rural  practice;    even  though  board  certified   specialists  offer 
Specialty  Clinics  on  the  campus,   young  physicians  are  reticent  to 
commit  to  practice  in  the  rural  setting. 

Medical   liability  costs   are  astronomical   compared  to  other 
states;    for  this  reason,    the  Hospital   is  now  providing  financial 
assistance  to  physicians  for  medical  liabili.ty  insurance  premiums 
related  to  practicing  obstetrics  and  pediatrics. 

Convoluted  administrative  processes  in  billing  for  patient  care 
and  meeting  outdated  Peer  Reviev/  Organization  patient  care 


Attachment  2 

criteria  further  degrade  the  attractiveness  of  private  practice 
for  physicians.   Physicians   in  solo  private  practice  find  a  heavy 
burden  in  these  administrative  challenges.      Group  practice  is 
generally  not  available  in  our  rural  areas,    and  such  multi- 
physician  group  practices   attract  new  physicians  because  of 
reduced  time  demands  and  simplified .administrative  concerns. 

Three  Rivers  Area  Hospital  has  succeeded  in:    recruiting  and 

establishing  needed  physicians;   cooperating  with  District  Health 

Department   in   serving   its  population;    improving  outpatient 

services;    diversifying   inpatient  care;    moving   forward  in 

diag/iostic,    therapeutic  and  prevention   services;    and  providing 

all  healthcare  services  to  the  Medicaid  patient  financially 


possible . 



The  Youth  and  Family  Cabinet  of  St.  Joseph  County  ^ 

November  15 ,  1991 


Represent.ative  Glenn  Oxender 
Senator  Paul  Wartner 
U.S.  Representative  Fred  Upton 
Governor  John  Engler 
Representative  Raymond  Murphy 
House  Speaker  Lewis  Dodak 


Medical  Staff,  Sturgis  Hospital 

Medical  Staff,  Three  Rivers  Area  Hospital 

Youth  &  Family  Cabinet  of  St.  Joseph  County: 

Department  of  Social  Services 

District  Health  Department 

Community  Mental  Health  Services 

Juvenile  Court,  Judge  Thomas  Shuraaker 

Substance  Abuse  Council 

Intermediate  School  District 

Domestic  Assault  Shelter 

RE:    Health  Care  Access  Crisis 

Please  review  the  attached  Position  Paper  that  summarizes  the  concerns  of  the 
above  signatories  to  this  memo,  and  contact  the  office  of  Mr.  Larry  Hermen, 
Executive  Director,  Community  Mental  Health  Services  of  St.  Joseph  County  at  (616) 
273-2000  regarding  your  attendance  at  a  briefing  for  the  media  scheduled  for 
Thursday,  December  5,  at  7:00  PM,  in  the  conference  room  of  the  ISD  building  at 
62445  Shimmel  Road,  Centrevllle.  Our  purpose  is  to  alert  those  responsible  parties 
to  the  ultimate  financial  and  societal  cost  now  being  incurred  due  to  the  limitations, 
inequities  ,  and  barriers  to  treatment  in  the  existing  Medicaid  reimbursement  system , 
as  it  affects  St.  Joseph  County  children  and  famiUes. 

The  briefing  will  be  structured  as  a  forum  for  testimony  by  health  care 
providers  and  response  by  legislators  to  local  concerns.  Specific  suggestions  and 
solutions  may  be  proposed  that  could  lead  to  support  of  existing  or  creation  of  new 
legislation.    Your  leadership  in  this  effort  would  be  greatly  appreciated. 

cc:      St.  Joseph  County  Medical  Society 
St.  Joseph  County  Dental  Society 

Community  Menial  Hoolih  •  Dcp.irtmcru  of  Social  Services  •  Disuict  Health  Department  •  Domestic  Assault  Shelter  Coalition 
St.  Joseph  County  Intermediate  School  District  •  St.  Joseph  County  Probata  Court  •  Substance  Abuse  Council 


Position  Paper 


SUMMARY:  Health  care  providers  and  public  agencies  in  St.  Joseph 
County,  Michigan  are  alerting  the  State  to  the  potential  serious 
and  long  term  impact  on  the  basic  health  care  of  children  and 
families  from  low  income,  directly  due  to  the  existing 
problems  found  with  the  State/Federal  Medicaid  payment  system. 
Unless  the  State  Legislature  streamlines  the  current  system, 
removes  the  economic  disincentives  found  by  physicians  who  wish  to 
treat  this  diverse  and  needy  population,  and  limits  the  liability 
found  uniquely  related  to  the  practice  of  serving  this  population, 
the  resulting  loss  of  basic  health  care  for  thousands  of  citizens 
will  cause  an  ultimate  long  term  and  permanent  societal  cost  in 
dollars  and  productivity  for  future  generations. 


1.  SERVICE  COSTS.  Few  physicians  are  available  to  serve  the 
Medicaid  patient,  without  establishing  strict  rationing, 
quotas,  or  "acceptable  fiscal  loss  limits"  within  their 
private  practices.  Those  physicians  who  serve  greater  than 
15%  Medicaid  cases  in  their  practice  run  the  risk  of  eventual 
financial  ruin  and  potential  cessation  of  their  private 
practice.  The  recent  reduction  in  the  Medicaid  office  visit 
payment  due  to  the  State  fiscal  crisis  has  accelerated  the 
shift  of  patients  from  physician  based  care  to  hospital 
emergency  care.  Hospitals  in  Three  Rivers  and  Sturgis  have 
begun  to  notice  a  sizeable  increase  in  the  Medicaid  patient 
service  demand,  often  for  routine  health  care  needs  that,  when 
delivered  in  a  hospital  setting,  dramatically  increase  the 
ultimate  cost  to  the  State  and  taxpayers.  Hospitals  have  begun 
to  find  themselves  responsible  for  the  large  number  of 
"Medicaid  refugees"  from  the  former  private  physician  care 
system.  Emergency  Department  care  is,  by  nature,  brief  and 
episodic.  If  it  becomes  the  only  source  of  health  care  for 
Medicaid  recipients,  it  will  result  in  a  less  comprehensive, 
less  preventative,  and  less  consistent  approach  to  health  care 
than  the  traditional  physician  based  office  care.  Ultimate 
costs  to  society  may  become  enormous  if  this  trend  becomes 
"the  system  of  care"  for  Medicaid  paid  outpatient  services. 


Position  Paper 

Health  Care  Access  Crisis 

Page  2 

2.  BUREAUCRACY.  Physicians  who  continue  to  treat  Medicaid 
clientele  find  that  the  paperwork/documentation  burden  alone 
is  often  enough  to  discourage  further  acceptance  of  new 
patients.  The  excessive  use  of  State  regulatq,ry  approaches  to 
medical  oversight  and  "quality  assurance"  may  in  fact 
discourage  the  very  same  practice  of  creative  and  personal 
quality  health  care  that  it  attempts  to  guarantee.  The 
likelihood  of  additional  MPRO  reviews  that  comes  with  the 
increased  acceptance  of  Medicaid  patients  becomes  a 
significant  reason  for  hesitancy  for  many  physicians  who  may 
wish  to  serve  this  population  and  contribute  to  the  public 
good.  One  acute  symptom  of  this  dysfunction  is  found  in  the 
apparent  arbitrary  policy  of  the  Medical  Services  bureaucracy 
to  pend  claims  in  times  of  uncertain  state  cash  flow.  The 
resulting  costs  for  physician  rebilling  and  receipt  of  late 
state  payments  are  entirely  born  by  each  physician  and  never 
recovered . 

3.  LIABILITY.  As  fewer  physicians  accept  new  Medicaid  patients, 
tl?e  burden  remaining  on  those  who  do  has  increased.  Staff 
physicians  at  both  Three  Rivers  and  Sturgis  Community 
Hospitals  have  recently  indicated  their  interest  in  sharing 
this  burden  through  the  development  of  a  volunteer  clinic 
approach  providing  gratis  professional  services,  possibly 
sponsored  by  the  District  Health  Department,  or  hospitals  in 
each  community.  This  potential  solution,  however,  requires 
the  State  to  extend  its  governmental  immunity  protection  to 
these  volunteers  as  it  does  with  its  own  delivery  of  state 
provided  health  care  services . 

4.  PUBLIC  POLICY  LEADERSHIP.  All  parties  are  disturbed  over  the 
lack  of  successful  public  policy  aimed  at  preventing  the 
social  climate  that  may  unintentionally  encourage  dependence 
on  social  welfare  programs.  Medicaid  is  routinely  referred  to 
as  "the  insurance  program"  for  the  poor,  which  it  often 
becomes  when  jobs,  training,  and  incentives  for  productivity 
are  hard  to  find  in  many  communities.  We  realize  these  are 
social  problems  that  require  both  state  and  national 
leadership  for  resolution.  Health  care  providers  are  now 
finding  that  increasingly  higher  numbers  of  heretofore  middle 
income  families  are  relying  on  the  Medicaid  system  as  their 
health  care  safety  net.  It  is  time  that  legislators  address 
the  need  for  new  public  policy  that  encourages  and  offers 
incentives  to  physicians  to  serve  indigent  patients  rather 
than  erecting  additional  barriers  and  obstacles. 


Position  Paper 

Health  Care  Access  Crisis 

Page  3 


1.  Improve  the  standard  reimbursement  for  Medicaid  office 
procedures  so  as  to  encourage  a  greater  sharing  of  the  patient 
population  among  community  physicians. 

2 .  Streamline  and  reduce  the  required  documentation  and 
regulatory  overkill  that  diverts  valuable  professional  time 
from  patient  care. 

3 .  Impose  reasonable  limits  and  access  to  large  settlements  and 
juried  payments  for  noneconomic  medical  losses  (pain  and 
suffering)  now  commonplace  in  the  medical  malpractice  arena. 
Provide  mediation  opportunities  for  health  care  practice 
disputes  prior  to  litigation  and  court  involvement. 

4.  Provide  governmental  immunity  for  physician  services  when 
provided  in  a  local  government  or  public  agency  operated 
health  clinic. 



Mr.  DiNGELL.  Thank  you.  Mr.  McDonough,  do  you  have  any  com- 
ments? The  Chair  will  recognize  my  colleagues  for  questions.  We 
will  start  with  Mr.  Upton. 

Mr.  Upton.  Thank  you.  Obviously,  one  of  our  primary  concerns 
is  access  to  health  care,  particularly  as  we  focus  toward  rural 
areas.  As  you  see  things  in  St.  Joe  County,  Jim,  and  throughout 
our  State,  and  I  know  there  are  a  host  of  nightmares  that  have  oc- 
curred in  terms  of  providing  quality  service,  but  what  percent  of 
people  that  come  for  help  do  you  think  are  either  underinsured  or 
totally  uninsured  that  you  provide  health  care  for? 

Mr.  Foster.  Twenty-five  percent,  as  a  generalization,  seek  pri- 
mary physical  care  in  our  Emergency  Department  through  the 
Urgent  Care  Program.  Our  visits  last  year,  as  I  recall,  less  than 
14,000  visits.  Those  people  arrived,  though,  at  a  point  of  being  very 
far  into  the  disease  process  in  many  cases. 

A  patient  comes  in  with  an  earache,  an  infant  with  an  earache, 
and  you  discover  pneumonia.  So  there  is  a  lack  of  access  across  the 
range  for  a  number  of  people.  I  have  no  way  of  knowing  what  the 
percentage  is  in  our  particular  area. 

Mr.  Upton.  I  was  delighted  to  hear  in  your  statement  regarding 
locating  a  physician  from  Wayne  State  to  come  to  Three  Rivers 
and,  obviously,  to  fill  the  hole  that  is  there,  because  I  have  talked 
to  various  hospital  administrators  throughout  our  part  of  the  State. 

I  know,  as  an  example,  in  Allegan  County,  when  the  obstetrician 
left,  she  was  not  replaced.  They  didn't  advertise  for  someone  to 
come  in.  In  border  counties,  Berrien,  St.  Joe,  Branch,  I  know  there 
have  been  real  shortages.  Particularly  as  we  look  to  Indiana  and 
Ohio,  the  malpractice  rates  our  physicians  pay,  sometimes  tens  of 
thousands  of  dollars  higher  than  if  they  would  move  just  a  couple 
of  miles  south  to  the  next  State.  I  wonder  if  you  might  elaborate  on 
those  examples  for  our  panel  today. 

Mr.  Foster.  We  are  very  fortunate  at  Three  Rivers  to  resident 
obstetricians-gynecologists,  to  join  other  family  physicians.  Babies 
are  a  booming  business  for  us,  part  of  that  coming  through  the  dis- 
trict health  clinic,  where  three  physicians  provide  prenatal  care,  as 
well  as  deliveries. 

We  have,  as  a  hospital,  entered  into  a  relationship  with  those 
physicians  providing  obstetrical  care,  to  assist  them  with  excessive 
premiums  in  gaining,  in  buying  professional  liability  insurance.  It 
is  something  we  felt  that  we  needed  to  do  in  order  to  maintain  the 
viability  of  their  practices,  and  one  of  those  physicians  was  looking 
at  an  assess  of  $50,000  to  continue  her  practice  in  doing  obstetrics 
and  gynecology. 

That  is  a  very  stiff  premium  payment  to  make  when  the  physi- 
cian is  operating  her  own  business.  We  have,  in  order  to  assure 
that  service  both  to  the  district  health  department  recipients  and 
the  whole  range  of  clients  in  Three  Rivers  have  gotten  into  that 
with  that  group  of  physicians. 

The  other  conditions  that  we  find  is  that— I  know  of  a  number  of 
hospitals  that  physicians  have  left,  and  I  think  that  is  a  significant 
part  of  the  challenge  that  we  have,  is  rural  hospitals.  It  is  not  just 
the  fact  that  the  liability  insurance,  when  you  add  a  very  heavy 
Medicaid  population,  in  many  of  their  practices  the  practice  simply 
becomes  financially  inviable. 


Mr.  Upton.  Dr.  Smith,  when  he  was  here  earlier,  talked  a  little 
bit  about  the  progress  they  have  tried  to  make  with  regard  to 
streamlining  forms,  reimbursement  forms,  paper  requirements.  As 
I  said  then,  I  have  heard  so  many  complaints  as  I  traveled  across 
the  State.  Have  you  been  satisfied  with  the  progress  the  State  has 

Mr.  Foster.  The  physicians,  as  we  all  do,  try  to  contain  the  over- 
head in  their  offices,  and  to  receive  a  very  small  percentage  of 
their  charge  for  a  given  procedure  or  office  visit;  and  to  have  to  bill 
it  numerous  times  in  order  to  get  it  paid  is  not  acceptable  to  them, 
one  of  the  reasons  that  many  of  them  have  stated  they  ceased  to 
offer  services  to  new  Medicaid  patients.  There  is  one  physician  on 
our  medical  staff  at  the  present  time  who  will  accept  new  Medicaid 
patients.  All  of  them  will  provide  care  for  Medicaid  patients  who 
are  presently  in  the  practice,  but  those  newcomers  are  not  accepted 
in  the  practice.  The  billing  procedures,  and  I  think  the  peer  review 
follow-ups,  are  a  major  part  of  that  resistance. 

Mr.  DiNGELL.  If  the  gentleman  will  yield,  payments  by  Medicaid 
and  the  slowness  of  those  payments  also  is  a  problem. 

Mr.  Foster.  Exactly.  We  are  presently  at  about  $17,  I  think, 
having  just  come  back  from  $14  for  an  office  visit.  When  you  add  to 
that  the  slowness  of  having  a  cash  flow  and  the  perceived  increase 
in  the  liability  risk,  medical  liability  of  that  clientele,  then  they 
have  reasons  that  they  restrict  additions  to  their  practice. 

Mr.  McDoNOUGH.  Mr.  Chairman,  we  heard  earlier  about  600-bed 
hospitals  with  50  people  involved  in  billing.  We  are  a  60-bed  hospi- 
tal and  we  have  about  15  people  directly  involved  in  billing. 

Mr.  DiNGELL.  Your  ratio  is  higher,  but  higher  because  you  prob- 
ably have  a  larger  number  of  form  filings  to  make  relative  to  your 
number  of  patients,  is  that  correct? 

Mr.  McDoNOUGH.  And  multiple  filing  until  we  get  billed. 

Mr.  DiNGELL.  Would  you  say  generally  the  statement  is  that  bil- 
lings tend  to  be  about  as  high  as  I  indicated,  or  as  high  as  you  are 

Mr.  McDoNOUGH.  Yes. 

Mr.  DiNGELL.  I  thank  the  gentleman. 

Mr.  Upton.  One  further  question.  I  know  my  time  has  expired.  I 
know  that  Three  Rivers  has,  correctly  so,  I  think,  tried  to  focus 
more  attention  on  outpatient  services,  preventive  health  care, 
thinking  they  can  save  money  in  the  long  run. 

But  because  of  the  recent  reduction  in  the  Medicaid  program  in 
the  State  of  Michigan,  have  you  seen  a  greater  shift  perhaps  to- 
wards emergency  room  than  physician-based  care?  Has  it  been 
much  harder  to  achieve? 

Mr.  Foster.  Those  patients  are  unable  to  achieve  physician  serv- 
ices at  the  present  time  in  the  office,  and  the  only  alternative  then 
is  to  come  to  the  emergency  department,  which  generally  our  im- 
pression is  that  those  people  will  resist  that. 

They  will  wait  until  very  late  in  the  disease  process  to  seek  care 
at  the  emergency  department.  I  trust  there  is  no  restriction  or 
hurdle  for  them  to  get  over  at  my  place.  That  certainly  had  better 
be  true,  but  it  is  just  much  easier  and  much  more  desirable  to  have 
that  physician  relationship  which  they  presently  aren't  able  to  get. 

Mr.  Upton.  Thank  you.  I  yield  back  the  balance  of  my  time. 


Mr.  DiNGELL.  The  Chair  thanks  the  gentleman.  The  gentleman 
from  Colorado,  Mr.  Schaefer. 

Mr.  Schaefer.  Thank  you,  Mr.  Chairman.  I  want  to  pick  up  on 
this  form  thing  for  one  second.  It  came  up  earlier  in  a  conversa- 
tion. If  indeed  there  is  a  small  mistake  on  the  form,  it  goes  in,  it 
comes  back,  OK,  so  we  are  talking  here  a  period  of  a  month,  6 
weeks,  or  whatever,  and  not  only  are  you  delayed  in  getting  the 
dollars,  but  also  there  is  a  possibility  of  breaking  the  law  every 
time  you  make  out  one  of  these  things  and  you  don't  do  it  right. 
Isn't  this  correct? 

Mr.  Foster.  That  is  correct. 

Mr.  Schaefer.  It  seems  to  me  one  thing  that  has  come  out  of  this 
today,  is  the  fact  that  we  have  to  do  our  darnedest  to  simplify  these 
forms,  not  only  from  that  benefit,  but  because  I  do  not  want  to  con- 
tinue to  lose  doctors  that  take  care  of  these  people. 

You  made  a  couple  of  statements  here.  We  have  problems  in  Col- 
orado, in  rural  areas.  How  do  you  get  physicians  out  there  and  how 
do  you  hold  them?  Is  there  a  program  in  the  State  of  Michigan  at  a 
reduced  cost  for  tuition  if  a  physician  would  agree  to  serve  in  a 
rural  area  for  a  3-  to  5-year  period? 

Mr.  Foster.  Yes.  There  is  a  Public  Health  Service  program  in 
which  physicians  have  been  able  to — I  am  sorry,  the  term  is  work 
off,  to  have  that  forgiven  over  a  period  of  service  within  our  area, 
and  for  a  number  of  years,  our  hospital  benefited  by  physicians  in 
the  emergency  department  who  were  in  that  program. 

A  neighboring  community,  Dowagiac,  has  used  a  similar  ap- 
proach in  having  pediatricians  at  their  hospitals.  In  one  instance, 
of  those  physicians  that  have  come  to  us,  we  succeeded  in  locating 
that  physician  in  our  community.  He  is  a  board-certified  emergen- 
cy physician,  director  of  our  medical — medical  director  of  our  emer- 
gency department,  and  the  others  have  worked  through  their  

Mr.  Schaefer.  Obligation. 

Mr.  Foster.  Yes,  thank  you.  And  then  they  have  moved  to  other 
things.  We  work  very  closely  with  one  of  those  in  particular,  and  I 
think  we  were  close  in  terms  of  offering  her  an  attractive  practice 
opportunity.  She  subsequently  relocated  with  her  husband,  who 
had  also  been  in  that  program,  to  Grand  Rapids,  and  they  live 
there  now. 

Mr.  Schaefer.  Also,  you  talk  about  the  emergency  room.  In  the 
State  of  Colorado,  the  number  of  people  that  go  into  the  outpatient 
has  just  shot  completely  up.  More  and  more  people  are  going  out- 
patient and  trying  to  stay  away  from  going  into  the  hospital  on  a  2- 
or  3-  or  4  day  basis.  That  is  true  with  you,  right? 

Mr.  Foster.  I  would  rather  be  at  home  than  in  the  hospital. 

Mr.  Schaefer.  I  think  that  may  be  part  of  it,  but  the  other  part 
may  be  affording  the  cost  of  staying  2  or  3  days. 

Mr.  Foster.  Yes. 

Mr.  Schaefer.  Ms.  McParland,  you  stated  you  know  these  budget 
cuts  and  you  stated  some  cases  that  we  would  all  dearly  love  not  to 
have.  From  your  experience,  these  are  mostly  the  elderly,  the  poor, 
disabled  or  children? 

Ms.  McParland.  Congressman  Schaefer,  I  bring  up  the  elderly 
and  disabled  particularly  because  the  programs  in  place  in  the 
State  of  Michigan  were  created  to  provide  assistance  to  the  dis- 


abled  who  don't  receive  SSI  or  other  Federal  benefits.  They  were 
formerly  receiving  State-funded  general  assistance. 

I  guess  I  point  those  out  by  way  of  showing  how  deficient  the  so- 
called  safety  net  is  when  it  is  not  providing  assistance  to  the  very 
most  vulnerable,  those  whom  these  programs  were  allegedly  cre- 
ated to  care  for  and  they  are  not.  There  are  many  people  some- 
where in  between  who  are  also  not  receiving  medical  care  or  any 
form  of  cash  assistance. 

In  my  written  statement  that  is  now  part  of  the  record,  I  have  a 
piece  on  there  about  what  the  so-called  employables  are.  It  is  a 
group  often  overlooked  because  so  much  of  the  rhetoric  involves 
cutting  off  welfare  for  the  able-bodied  single  people. 

Again,  of  course,  in  an  ideal  situation  with  a  decent  economy, 
those  sorts  of  goals  are  laudatory.  However,  that  is  not  the  case  in 
Michigan,  and  we  have  thousands  and  thousands  of  people  who 
present  vocational  barriers,  lack  of  transportation,  there  is  no  em- 
ployment and  training  in  this  State  anymore  of  any  significance, 
who  are  not  going  to  become  employed. 

I  included  some  excerpts  from  a  study  of  the  State  of  Pennsylva- 
nia done  by  Professor  Halter  from  the  University  of  Illinois  that 
was  conducted  in  the  2  to  3  years  following  the  termination  or  re- 
striction of  general  relief  in  the  State  of  Pennsylvania.  And  what  it 
showed  was  it  took  the  best  group  or  the  people  who  would  be  the 
most  likely  to  find  employment,  and  out  of  that  group,  only  10  per- 
cent— and  this  was  with  diligence  in  looking  for  employment — ^were 
able  to  find  any  employment  of  any  duration  in  the  following  year 
to  2  years. 

In  this  recessionary  economy  in  Michigan,  I  think  that  gives  us 
some  clue  as  to  what  is  going  to  happen.  Obviously,  that  group  of 
people  who  are  not  receiving  cash  assistance  are  also  not  receiving 
any  medical  care.  The  indigent  medical  care  for  people  in  this 
State  who  aren't  on  SDA  or  State  family  assistance,  families  with 
children,  doesn't  exist. 

Maybe  if  you  have  a  life-threatening  condition  and  need  a  so- 
called  life-sustaining  medication,  you  will  get  it,  and  that  is  it.  Ob- 
viously, Wayne  County  has  the  Wayne  County  Care  System.  It  has 
some  flaws,  but  compared  to  what  is  going  on  out  of  State,  it  is  not 
that  bad. 

Mr.  ScHAEFER.  What  about  the  immunization  program  for  young 
children,  for  children  under  the  age  of  3?  Has  this  been  cut  off,  or 
is  it  continuing? 

Ms.  McParland.  I  am  not  aware  of  it  being  cut  off  or  of  any  sig- 
nificant cutbacks.  I  believe  that  is  pretty  much  a  federally-funded 
program,  on  a  match  basis,  I  assume.  I  believe  I  would  be  aware  if 
that  had  been  cut  back,  and  I  don't  think  it  has  been. 

However,  some  of  the  early  prevention  and  screening  detection 
systems  for  young  children  have  been  cut  back  in  this  State.  Again, 
you  have  one  thing  working  OK,  but  when  you  have  basic  pro- 
grams slashed  and  cut,  that  obviously  has  to  undermine  the  health 
and  welfare  of  this  population. 

Mr.  ScHAEFER.  My  other  colleagues  from  Michigan  may  be  more 
aware  of  that.  That  is  one  program  I  always  strongly  believed  in. 
What  about  the  workers?  What  will  happen  to  them  that  were  laid 
off  like,  say,  at  Willow  Run? 


Ms.  McParland.  I  think  what  will  happen  to  them  eventually  is 
what  has  happened  to  auto  workers  that  were  laid  off  and  separat- 
ed from  employment  over  a  decade  ago.  They  spend  a  certain 
amount  of  time  on  unemployment  compensation  benefits.  If  they 
are  lucky,  they  may  be  able  to  find  other  employment  with  equal 
or  nearly  equal  pay. 

If  not,  they  would  have,  at  least  in  the  past,  ended  up  on  general 
assistance  benefits  to  fill  the  gap,  but  those  don't  exist  any  longer. 
Unless  these  people  are  extremely  disabled,  which  means  they 
won't  be  finding  employment  eventually  anyway,  or  otherwise 
qualified  for  other  programs,  there  won't  be  anything  for  them. 

Mr.  ScHAEFER.  You  are  sa5dng  if  they  don't  find  equal  employ- 
ment, they  won't  have  health  care. 

Ms.  McParland.  Right.  Obviously,  they  wouldn't  have  health 
care,  either,  and  would  be  going  to  find  the  health  care  in  some 
sort  of  government-funded  system. 

Mr.  ScHAEFER.  Has  the  private  or  volunteer  sector  stepped  in  on 
this  in  the  past  to  help  these  type  of  individuals? 

Ms.  McParland.  The  private  and  charitable  organizations  in  this 
State  have  done — taken  heroic  measures  to  fill  the  gap,  but  they 
cannot.  There  are  too  many  people  placing  too  many  demands  for 
too  many  different  services  in  this  State. 

I  will  give  you  one  example.  Last  April,  this  State  stopped  paying 
for  delinquent  water  and  sewage  bills  under  its  Emergency  Assist- 
ance Program.  Thousands,  and  I  mean  thousands,  of  people  were 
facing  imminent  interruption  of  water  service  within  the  weeks  fol- 
lowing that  policy  change. 

Our  office  filed  a  lawsuit  in  the  Circuit  Court  and  got  a  restrain- 
ing order.  However,  in  the  3  or  4  weeks  that  the  policy  was  actual- 
ly in  place,  the  American  Red  Cross,  located  in  Kalamazoo;  the  So- 
ciety of  St.  Vincent  de  Paul,  located  in  Lansing;  and  other  parts  of 
the  State  depleted  their  entire  annual  budgets  on  water  bills  for 
these  people  who  were  cut  off  assistance  in  1  month. 

Now,  obviously,  agencies  like  that,  if  they  deplete  their  entire 
annual  budget,  the  Red  Cross  had  set  up  back  in  April  something 
called  an  emergency  triage  system,  or  whatever,  because  they 
knew  they  would  be  inundated  beginning  in  March,  April  and  May 
with  requests  for  emergency  housing,  water  bills,  utilities  and 
other  emergency  medical  needs,  for  example.  Their  budgets  were 

It  is,  frankly,  not  something  they  wished  to  advertise  as  such  an 
important  health  agency,  but  it  is  something  that  did  occur,  and 
that  is  part  of  the  public  record  in  our  lawsuit. 

Mr.  ScHAEFER.  Thank  you,  Ms.  McParland. 

Mr.  Adamany,  in  your  statement  you  stated  that  without  urban 
medical  care,  health  care  for  the  poor  and  disadvantaged  in  our 
cities,  the  cities  are  going  to  basically  collapse.  You  emphasize,  this 
demonstrates  no  Federal  or  State  health  care  safety  net  for  the 
most  needy  exists. 

How  much  longer  can  we  go  on?  How  much  time  do  we  have 
without  people  having  basic  services? 

Mr.  Adamany.  About  2  years  after  we  can  no  longer  get  volun- 
tary Medicaid  contributions.  Probably  survive  as  a  financial  entity 


for  about  2  years  at  the  rate  of — at  any  rate  of  losses  of  $40  million 
a  year  we  would  begin  to  close  our  doors. 

Mr.  DiNGELL.  Will  the  gentleman  jdeld?  Our  committee  submit- 
ted a  report.  That  program,  I  am  told,  will  terminate  this  fall,  at 
the  end  of  this  year,  because  we  were  only  able  to  procure  a  1-year 
extension  through  calendar  year  1992,  at  which  time  we  are  going 
to  have  to  scratch  around  trjdng  to  figure  out  what  we  can  do  to 
preserve  the  program  you  and  Mr.  Schaefer  are  discussing. 

Mr.  Adamany.  Mr.  Chairman,  the  last  year  before  we  became  eli- 
gible in  Michigan  for  voluntary  contributions,  the  losses  in  the  De- 
troit Medical  Center  were  $40  million.  We  probably  couldn't  sus- 
tain that  for  more  than  about  2  years,  at  best.  In  the  past,  we  have 
had  some  opportunities  to  engage  in  cost  shifting  but,  of  course, 
there  are  more  and  more  constraints  on  cost  shifting,  so  it  is  very 
tough  to  figure  out  how  you  continue  to  keep  the  doors  of  the  emer- 
gency rooms,  clinics  and  hospitals  open  to  all  the  people  that  come 
to  you  at  a  loss  of  $40  million  a  year.  To  give  you  a  sense,  the  total 
volume  in  the  Medical  Center  is  about  $960  million,  so  you  deplete 
what  little  reserves  you  have  very  quickly. 

Mr.  DiNGELL.  I  apologize. 

Mr.  Schaefer.  I  appreciate  the  chairman's  comments.  How  many 
people  under  the  poverty  level  are  shut  out  in  Wayne  County,  ap- 

Mr.  Adamany.  Let's  see. 

Mr.  Schaefer.  I  think  I  read  somewhere  it  was  like  350,000. 

Mr.  Adamany.  Three  hundred  and  fifty  thousand  is  the  number 
that  do  not  fit  into  any  eligibility  categories. 

Mr.  Schaefer.  What  about  the  43,000  that  were  incorporated 
into  Mr.  McNamara's  county  program?  Is  there  in  addition  to?  Are 
we  talking  400,000,  or  are  we  looking  at  300,000,  approximately? 

Mr.  Adamany.  I  think  the  350,000  in  Wa5nie  County  are  people 
who  have  no  health  care.  I  think  that  does  not — that  the  47,000  are 
not  included  in  the  350,000  because  they  have  county  care,  so  they 
have  some  form  of  health  care,  no  matter  the  character  of  it. 

Mr.  Schaefer.  Mr.  Chairman,  I  have  no  more  questions.  I  want 
to  thank  the  gentleman  for  giving  us  the  opportunity  to  use  his  fa- 
cility here.  It  has  been  very  excellent. 

Mr.  DiNGELL.  Dr.  Adamany  is  always  doing  something  like  that. 
The  gentleman  from  Michigan,  Mr.  Conyers. 

Mr.  Conyers.  Thank  you  very  much.  You  know,  it  is  refreshing, 
Mr.  Chairman,  to  hear  about  lawyers  that  are  working  in  the 
public  interest. 

Michigan  Legal  Services,  and  Susan  McParland  in  particular, 
have  done  yeoman's  work  across  the  years,  and  I  was  about  to  raise 
some  discussion  about  how  much  free  service  is  being  dispensed, 
but  I  noticed  in  your  brief-like  testimony  that  was  submitted  that 
you  say  among  other  things,  what  alternatives  exist  to  provide 
health  care  services  and  other  services  with  public  ramifications, 
that  is,  to  provide  food,  drug  abuse  education  and  counseling,  and 
then  you  list  free  assistance  with  court  hearings. 

Here  it  is  providers  at  these  clinics  seek  specialty  care  from  area 
hospitals,  universities,  apparently  with  success.  Attendance  at 
these  clinics  is  limited  by  geography  and  limited  hours.  That  is  en- 
couraging, because  my  impression  is,  when  you  go  to  an  emergency 


room  in  Detroit,  you  get  emergency  treatment.  You  are  not  given 
comprehensive,  preventive  treatment.  I  go  into  them  often  enough 
to  see  what  is  going  on.  You  wait  many  hours. 

I  have  had  hospitals  explain  to  me  how  they  shrink  their  emer- 
gency room  so  that  when  EMS  is  looking  for  someplace  to  take 
somebody,  they  are  filled  up.  They  are  filled  up  because  they  can 
only  take  six  patients  a  night,  so  anything  over  six  goes  to  Ford 
Hospital  or  down  at  the  Center. 

And  I  am  happy  to  know  that  specialty  care  does  come  from  hos- 
pitals. I  had  a  very  short-sighted  view  of  this.  To  hear  it  from  you 
is  more  reassuring  than  almost  hearing  it  from  anybody  else. 

Ms.  McParland.  Thank  you.  I  might  add,  however,  that  these 
services,  although  more  complex  and  wide-ranging  than  in  emer- 
gency rooms,  are  extremely  limited.  These  clinics — and  there  are 
only  three  of  them  throughout  the  State,  are  seeking  this  help  and 
assistance  from  area  hospitals  and  do,  to  some  degree,  receive 

However,  the  numbers  in  the  population  that  these  people  actu- 
ally serve,  it  is  small,  obviously,  just  by  virtue  of  the  size  and  their 
extremely  limited  resources.  I  might  add  that  since  the  State  has 
dropped  the  Medicaid  option  of  substance  abuse  treatment,  and 
that  is  so  limited,  that  is  obviously  putting  a  lot  more  stress  on 
clinics  like  this  out  in  urban  areas  that  are  trying  to  fill  that  gap, 
and  they  are  obviously  then  not  able  to  go  on  and  do  other  things. 
Their  resources  are  depleted  in  that  area. 

Mr.  CoNYERS.  Well,  we  turn  now  to  Dr.  Adamany,  whose  friend- 
ship goes  back  quite  a  way.  He  notified  me  that  my  niece  had  been 
admitted  to  the  same  law  school  that  I  attended;  and  my  brother. 
My  nephew  sitting  out  here  in  the  audience,  Gregory  Conyers,  may 
also  end  up  on  the  list  trying  to  crash  these  doors  one  of  these 

But  I  am  alarmed  about  the  bleak  picture  that  you  have  de- 
scribed financially,  in  terms  of  the  hospital's  existence.  It  sounds 
like  the  veterans'  hospital  that  we  have  been  working  on  to  get 
built  down  there  may  be  the  only  thing  around  when  it  is  finished 
5  years  from  now,  at  the  rate  this  is  going. 

I  am  very  concerned  about  that,  but  because  you  are  not  a  physi- 
cian and  are  on  the  board,  it  gives  me  great  hope  to  enter  into  this 
discussion  with  you. 

Much  of  this  training  is  going  on  at  the  expense  of  the  hospital 
and  the  surrounding  community  that  trains  all  of  these  wonderful 
doctors,  who  are  getting  the  greatest  training  on  earth,  and  who 
immediately  take  this  training  and  then  split  for  the  suburbs.  They 
skip  the  rural  areas,  as  Foster  and  McDonough  can  tell  us  in 

I  have  been  in  Minnesota  with  Representative  Colin  Peterson 
and  my  staff.  These  doctors  get  the  heck  out  of  the  immediate  city 
and  city  university  that  benefitted  them.  They  become  specialists 
to  the  third  toe  on  the  left  foot,  everything  but  what  we  exactly 
need;  primary  care,  family  medicine. 

And  we  have  this  incredible  disproportionate  ratio  of  specialists 
at  Bethesda  Naval  Hospital.  I  was  told  by  the  Chief  of  Surgery 
there  that  in  his  class,  only  he  and  one  other  student  went  into 
general  medicine. 


Well,  the  reasons  for  this  are  obvious.  There  is  no  money,  and  i 
there  is  no  status.  We  can't  blame  them  in  the  kind  of  culture  in 
which  we  are  all  a  part.  i 

But  it  would  seem  to  me,  in  addition  to  giving  the  uncompensat-  i 
ed  care  which  we  are  all  grateful  for,  that  somewhere  along  the  j 
line  somebody  in  the  medical  community  ought  to  say,  there  ought 
to  be  more  doctors  going  into  the  preventive  family  and  basic  pri-  1 
mary  medicines,  which  we  don't  have  going  on.  | 

And  it  is  extremely  disturbing.  We  don't  know  how  to  get  that 
placement.  And  I  don't  want  to  talk  about  it  in  terms  of  legislation, 
but  I  need  people  like  you  that  are  working  with  people  and  have 
some  clout  to  see  that  we  do  this. 

The  number  of  minority  physicians  is  still  something  that  we  are 
talking  about.  I  see  Charlie  Vincent  all  the  time — not  recently 
since  he  became  a  political  figure.  I  am  not  as  close  to  him  as  I 
used  to  be.  But  the  fact  still  remains  that  we  have  more  doctors 
coming  in  from — and  receiving  training  from  other  countries  than 
we  have  minority  physicians  coming  through  our  system.  At  the 
national  level,  we  have  2  percent  of  the  physicians  in  this  country 
being  African- American  or  other  indigenous  minority. 

We  have  got  to  kick  this  up  to,  modestlv,  6  percent  to  12  percent, 
six  times  as  much  as  we  have  now.  It  can  t  happen  without  enlight- 
ened people  like  you  talking  to  some  of  these  doctors  for  me  so  that 
we  get  this  message  through,  and  so  it  doesn't  always  just  result  in 
lawsuits  and  civil  rights  attacks  and  that  sort  of  thing. 

It  seems  that  among  reasonably  dedicated  people  we  could  see 
this  and  deal  with  these  two  problems  that  I  am  referring  to,  and  I 
think  this  should  be  a  basis  of  your  discussion  before  this  commit- 

Mr.  Adamany.  I  appreciate  your  comments.  You  are  right — I  am 
not  a  physician,  but  I  think  I  can  probably  tell  that  the  Dean's 
blood  pressure  is  probably  going  up  behind  me  on  this.  But  let  me 
start  at  the  end  of  your  list  of  concerns. 

We  do  have  very  substantial  programs  to  recruit  minority  people 
into  the  physician-training  programs  now  at  the  Wayne  Medical 
School.  In  addition  to  those  who  are  regularly  admitted,  we  have  a 
very  fine  program  in  which  we  admit  students  with  high  potential 
but  not  very  good  academic  records  and  give  them  what  is  called  a 
post-baccalaureate  year,  in  effect  giving  them  an  additional  year  in 
preparing  them  for  the  M.D.  program. 

We  have  had  a  good  degree  of  success  in  that,  so  the  percentage 
of  minority  people  in  medical  training  has  gone  up.  We  are  certain- 
ly above  the  national  numbers,  not  the  2  percent  you  describe,  but 
we  are  well  above  the  12  percent  you  describe  nationally. 

Similarly,  we  have  addressed  locally  the  concern  about  training 
more  foreign  physicians  than  U.S.  physicians,  both  majority  and 
minority  races.  We  have — about  90  percent  of  our  medical  students 
are  from  within  the  State  of  Michigan,  and  almost  all  of  the  re- 
maining 10  percent  from  outside  the  State  are  U.S.  citizens.  So  that 
we  also  have  moved  a  little  bit  on  that.  I  wish  we  had  solved  all 
our  problems  as  well  as  we  are  addressing  these  two,  Mr.  Chair- 

Now,  the  problem  of  practice  in  the  city  as  opposed  to  specializa- 
tion in  the  suburbs  is  an  extremely  complex  issue.  At  a  minimum. 


the  entire  incentive  structure  in  medical  care,  the  economic  incen- 
tive structure,  is  in  favor  of  specialization  and  in  favor  of  suburban 

It  is  an  interesting  question,  the  extent  to  which  we  can  expect 
solitary  individuals  to  depart  from  powerful  incentive  systems  cre- 
ated by  the  Nation's  economic  systems,  including  those  mandated 
or  supported  by  the  Government.  So  that  we  really  are  asking  indi- 
viduals to  be  heroes,  and,  while  there  are  some  heroes,  the  likeli- 
hood there  will  be  mass  heroism  is  not  high.  So  we  have  got  to 
rethink  the  incentive  structures. 

The  other  factor  is  one  that  was  previously  mentioned,  and  that 
has  to  do  with  malpractice  issues.  I  am  going  to  let  the  Dean  tell 
you  what  a  terrible  malpractice  cost  situation  we  have,  but  before  1 
do  that  I  am  going  to  speak  not  from  a  physician's  perspective  but 
from  a  hospital  perspective. 

We  had  a  lawsuit  from  a  Medicaid  patient  who  came  into  one  of 
our  hospitals,  without  adequate  prenatal  care,  gave  birth  to  a  baby 
who  by  every  morbidity  factor  should  have  died.  The  baby  sur- 
vived, but  terribly,  terribly  handicapped.  The  physicians  caring  for 
the  mother  and  the  baby,  in  rushing  that  tiny  bit  of  life  to  the  in- 
tensive care  unit,  failed  to  take  notes  on  every  step  that  they  did 
for  a  period  of  about  4  minutes.  The  jury  verdict  was  $19  million 
against  a  hospital  that  provides  50  percent,  more  than  50  percent 
of  the  live  births  in  the  city,  many  of  them  to  women  with  no  pre- 
natal care  and  drug  and  alcohol  abusers. 

We  settled  that  case.  I  am  not  at  liberty  to  say  the  amount  we 
settled  it  for  before  we  went  to  appeal,  but  I  will  tell  you  it  was 
more  than  one  of  the  recent  deficits  in  the  whole  Detroit  Medical 

Now,  what  is  the  lesson?  We  won't  have  such  a  lawsuit  this  year 
or  next  year  or  in  the  year  following.  The  lesson  is  we  are  scared  to 
death  of  malpractice  lawsuits,  and  we  will  settle  them  in  a  profli- 
gate fashion  to  avoid  a  $19  million  judgment.  We  are  a  $950  million 
a  year  corporation.  No  physician  making  any  rational  calculation 
will  subject  themselves  to  that  level  of  risk.  So  I  think  that  we 
have  just  an  awful  problem. 

Mr.  CoNYERS.  What  do  you  recommend?  This  is  what  we  are  here 
for.  Should  we  just  cap  it  out  at  a  few  hundred  thousand  dollars, 
and  end  your  problem? 

Mr.  Adamany.  I  think  capping,  because  of  its  arbitrary  charac- 
ter, not  taking  into  account  the  severity  of  the  injury,  is  rightly 
frowned  on  by  those  of  us  trained  as  lawyers.  The  other  side  is  that 
there  is  nothing  more  arbitrary  than  the  present  system  that  be- 
comes really  a  lottery.  So  we  are  going  to  have  some  amelioration 
of  this,  and  it  may  be  that  capping  will  be  a  lesser  evil  than  the 
one  we  have  got,  though  it  is  still  in  the  category  of  evils.  It  may  be 
we  will  have  to  have  a  national  insurance  pool  to  address  these 

Mr.  CoNYERS.  What  about  revising  the  elements  of  liability?  I 
mean,  there  is  certainly  something  besides  capping  and  a  national 
insurance  pool.  In  Canada,  if  I  dare  raise  the  question  of  our 
friends  3  miles  away,  the  elements  of  liability  are  much  different, 
and  you  have  to  prove  a  lot  more,  and  you  get  socked  with  the  at- 


torneys'  and  courts'  cost  and  sometimes  a  penalty  if  you  lose  the  I 
case.  I 

And  so  it  seems  to  me  there  are  a  wide  range  of  legal  consider-  | 
ations  that  would  lead  us  to  deal  with  this  matter.  ' 

Now,  in  this  horror  story  that  you  have  volunteered,  let  me  just  | 
ask  you  this.  Were  the  lawyers  at  fault?  Was  the  judge  at  fault?  j 
Was  the  jury  out  to  lunch?  Was  the  law  bad?  How  do  you  assess 
this,  since  you  have  given  us  this  bare-bones  description  of  what  is  ! 
a  horror  story  by  anybody's  definition?  What  happened?  You  mean 
the  doctors  were  faultless? 

Mr.  Adamany.  Well,  the  doctors  may  have  been  at  fault. 

Mr.  CoNYERS.  The  lady  is  nodding  her  head  yes  sitting  behind 
you,  and  is  apparently  familiar  with  the  case. 

Mr.  Adamany.  Let's  assume  the  doctors  were  at  fault.  Let's  | 
assume  everybody  in  the  system  functioned  flawlessly  except  the 
doctors.  The  fact  is  a  $19  million  settlement  is  far  in  excess  of  what 
is  needed  to  support  that  youngster  in  a  life  that  will  not  be  a  full 

So  that  even  making  the  assumption  that  the  doctors  were  terri- 
ble, which  is  not  the  assumption  we  make  because  that  is  a  hospi- 
tal where  the  people  come  to  us  with  no  prenatal  care,  significant 
drug  and  alcohol  abuse,  and  we  have  a  wonderful  mortality  rate 
given  the  high  morbidity  rates  we  have  got.  It  is  a  hospital  with  a 
superb  track  record.  But  let's  give  them  that.  We  can  still  ask, 
what  does  a  $19  million  settlement  mean?  It  means  that  we  have 
gone  well  beyond  taking  care  of  that  baby. 

Mr.  CoNYERS.  Well,  I  don't  know  that,  sir.  You  give  me  a  set  of 
facts,  you  give  me  a  conclusion,  and  then  tell  me,  incidentally,  that 
the  child  

I  am  sorry.  I  see  Chairman  Dingell  raise  his  gavel,  and  I  think, 
as  chairman  of  another  committee,  I  understand  what  that  means. 

But  at  any  rate,  let's  continue  this  discussion.  It  is  not  necessary 
that  it  be  on  the  record.  But  it  is  important  that  I  raise  these  con- 
cerns with  you  since  this  is  in  the  local  and  national  interest  as 

I  thank  you  very  much  for  your  responses.  Thank  you,  Mr. 

Mr.  Dingell.  I  thank  the  gentleman.  The  Chair  also  thanks  the 
doctor  for  raising  the  question.  I  have  some  modest  familiarity  with 
this  particular  matter,  too. 

I  would  make  one  additional  observation.  The  hospital  in  ques- 
tion may  very  well  soon  go  broke  in  good  part  because  of  this,  and 
it  happens  to  be  one  of  the  very  few  places  in  Michigan  where  the 
poor,  where  the  Medicaid-eligible  mothers  can  have  a  safe  and  a 
decent  pregnancy. 

Ms.  McParland,  your  comments  were  very  interesting  to  me.  I 
hear  often  from  experts  on  health  matters  that,  when  people  are 
without  health  insurance,  they  can  and  do  get  health  care.  They 
get  it  through  emergency  rooms,  free  clinics  or  something  of  that 

Now,  in  fact  the  evidence  strongly  suggests  to  the  contrary,  and 
studies  recently  conducted  by  UCLA  indicate  that  people  who  don't 
have  insurance  and  their  children  are  about  30  percent  less  likely 


to  see  a  doctor.  What  would  you  tell  us  your  experience  would  lead 
you  and  us  to  believe? 

Ms.  McParland.  I  am  not  familiar  with  that  study.  It  is  clear, 
however,  that  significant  numbers  of  people  in  Michigan  are  not 
receiving  health  care  at  all  and  certainly  not  adequate  health  care. 
That  is  driven  by  the  way  the  programs  are  structured.  They 
cannot — I  have  given  a  fair  amount  of  detail  to  the  committee 
about  the  State  medical  care  program. 

I  know  Dr.  Smith  and  Executive  McNamara  both  pointed  out 
that  people  who  want  and  need  health  care  badly  enough  will  ulti- 
mately find  it.  That  is  our  experience,  and  we  represent  classes  of 
plaintiffs  who  are  affected  by  the  changes  in  the  restrictions  in 
medical  care  in  this  State.  That  shows  us  that  that  is  just  not  true. 

Firstly,  to  place  that  sort  of  burden  on  the  elderly  or  disabled  is, 
you  know,  ludicrous  to  begin  with.  And,  second,  it  is  just  simply 
not  there. 

In  the  case  of  the  Faircloths,  who  are  named  plaintiffs  in  the 
lawsuit  we  just  filed  yesterday,  they — neither  of  them  are  able  to 
get  the  test  for  their  conditions  that  have  been  prescribed  and  that 
they  desperately  need.  Neither  of  them  are  able  regularly  to  get 
the  prescriptions  that  they  desperately  need  for  their  medical  con- 
ditions. These  are  not  anecdotal  situations.  But  they  are  represent- 
ative of  what  is  happening  to  thousands  of  people. 

Also,  in  this  State,  and  I  don't  think  I  mentioned  it  earlier,  and  I 
know  I  heard  when  Dr.  Smith  testified  he  mentioned  the  Medicaid 
option  services  that  Michigan  had  dropped  in  the  past  2  years. 
They  have  also  eliminated  coverage  for  older  QMB  people,  so  elder- 
ly and  disabled  people  who  previously  were  receiving  Medicaid  are 
not,  their  incomes  fall  somewhere  between  $385  and  $465  a  month. 
They  are  no  longer  receiving  any  Medicaid  coverage  in  this  State. 
That  option  was  dropped  last  year  by  Michigan.  And  about  17,000 
people  are  affected  by  that  reduction. 

Mr.  DiNGELL.  I  would  like  your  experience  on  another  related 
matter.  The  same  UCLA  study  found  people  without  insurance  who 
have  chronic  and  serious  illnesses  are  one-third  to  one-half  less 
likely  to  seek  care.  Do  you  want  to  comment  on  that,  even  though 
you  did  not,  in  fact,  see  the  study? 

Ms.  McParland.  Yes.  I  think  that  has  a  lot  of  validity.  People 
who  have  chronic  ailments  tend  not  to  be  utilizing  the  system  to 
the  degree  that  people  who  are  suffering  from  an  acute  ailment  do. 
So  that  it  is  the  emergency  room  service  and  payment  that  is  bur- 
geoning as  opposed  to  regular  kinds  of  office  visits  and  so  forth, 
which  is  pretty  much  backwards  in  terms  of  looking  at  efficient  de- 
livery of  services. 

People  with  chronic  ailments,  and  we  see  it  all  the  time  among 
our  clients,  they  learn  to  live  with  them.  Somehow  they  incorpo- 
rate this  into  their  daily  lives.  Obviously,  it  takes  its  toll,  and  that 
sort  of  long-term  deprivation  will  obviously  result  ultimately  in 
more  serious  health  problems,  which  the  system  ultimately  pays 
for,  of  course. 

Mr.  DiNGELL.  The  same  study  found  that  when  without  insur- 
ance people  who  even  have  serious  symptoms  such  as  loss  of  con- 
sciousness and  bleeding  are  fully  50  percent  less  likely  to  seek  care. 
Does  that  conform  with  your  views? 


Ms.  McParland.  It  conforms  with  our  experiences,  yes,  especial-  | 
ly  in  the  past  IV2  years.  I  am  aware  of  several  people  who  have  \ 
acute  medical  problems  for  which  they  are  not  receiving  any  help.  1 

For  example,  one  of  our  plaintiffs  has  a  condition  of  uterine  I 
tumors  that  are  so  severe  they  cause  her  to  hemorrhage  almost  on  | 
a  daily  basis.  Because  of  the  restrictions  on  hospital  and  surgical  ; 
care  in  the  State  medical  program,  she  has  gone  without  the  pre-  ! 
scribed  surgical  procedures  for  3  months. 

She  is  not  alone  in  that  experience.  There  are  many  others  like 
that  that  I  am  aware  of.  So,  yes,  I  think  that  statement  and  conclu- 
sion is  true. 

Mr.  DiNGELL.  Thank  you  very  much. 

Mr.  McDonough? 

Mr.  McDonough.  Chairman  Dingell,  there  was  a  recent  study  in 
the  State  of  Michigan  that  might  provide  some  of  the  information 
you  are  seeking.  The  Partnership  for  Michigan  Health  Care,  which 
is  a  coalition  of  the  Michigan  Chamber  of  Commerce,  New  Detroit, 
several  other  members,  did  a  poll  last  year,  and  in  that  poll  they 
found  that  within  Wayne  County  and  western  Michigan,  about  40 
percent,  somewhere  between  40  percent  and  50  percent  of  people 
without  health  insurance  will  seek  care  when  they  need  it  from 
emergency  rooms.  Somewhere  between  20  and  30  percent  will  go 
without  care. 

So  you  will  see  about  15  percent  go  to  a  free  clinic  when  that  is 
available,  and  they  are  available  fairly  often,  and  somewhere 
around  that  same  amount  will  go  to  a  family  doctor.  Of  course,  all 
people  not  on  insurance  aren't  necessarily  poor.  Some  people  just 
don't  have  insurance.  But  it  is  a  very  high  percentage  of  people,  by 
their  own  measure,  who  say,  when  I  am  not  well,  I  will  go  to  the 
emergency  room,  or  I  will  not  get  care  at  all. 

Mr.  Dingell.  When  they  go  into  an  emergency  room,  that  means 
that  the  hospital  has  got  to  deal  with  them  until  they  are  well 
enough  to  return  them  to  society. 

Mr.  McDonough.  That  is  correct. 

Mr.  Dingell.  If  it  is  a  serious  disease  or  if  it  is  a  serious  condi- 
tion requiring  surgery,  you  have  got  to  give  that  and  then  you  have 
either  got  to  find  somebody  to  pay  the  bill  or  you  have  got  to  eat 
the  bill.  And  in  the  case  of  a  60-bed  hospital,  that  could  be  a  seri- 
ous matter,  could  it  not? 

Mr.  McDonough.  It  doesn't  take  more  than  one  or  two  people  to 
put  us  in  a  very  bad  shape. 

Mr.  Dingell.  The  interesting  phenomenon  I  have  seen  in  health 
insurance,  in  a  lot  of  instances  employers  for  a  lot  of  reasons  feel  it 
desirable  or  absolutely  necessary  to  move  to  a  different  carrier  in 
which  event  they  find  that  they  might  get  a  more  agreeable  rate. 
But  they  get  coverage  which  does  not  include  preexisting  condi- 

So  here  you  have  got  a  guy  who  is  working,  covered  by  health 
insurance,  his  health  insurance  switches,  and  all  of  a  sudden  if  he 
has,  let's  say,  diabetes  or  cancer  or  something  of  this  kind.  Even 
though  he  has  been  working  and  doing  his  best  to  be  a  productive 
citizen,  his  condition  is  not  covered  by  his  carrier.  Is  that  a 
common  problem? 


Mr.  McDoNOUGH.  That  is  quite  common.  We  see  the  preexisting 
exclusion  problem  on  a  regular  basis,  when  people  are  just  left  out 
in  the  cold.  Beyond  that,  probably  more  so  than  in  the  urban  set- 
ting, we  see  people,  your  typical  family,  mom,  dad,  two  or  three 
kids,  between  the  parents  working  three,  sometimes  four  jobs,  at 
McDonald's  or  wherever  to  make  ends  meet,  no,  health  insurance 

I  was  in  our  emergency  room  with  one  of  my  children  who  had  a 
broken  arm.  In  walked  a  mom  and  dad,  three  kids  with  them,  hold- 
ing a  baby,  right  next  door.  I  couldn't  help  but  overhear.  They  had 
no  insurance.  The  baby  had  been  coughing  for  about  a  week.  Mom 
and  dad  hadn't  slept  for  two  nights,  didn't  have  insurance,  didn't 
have  a  doctor,  didn't  know  what  to  do. 

The  mom  said,  I  think  the  baby  has  infected  fleabites.  That  was 
true.  The  baby  also  had  pneumonia.  We  almost  lost  him.  They 
didn't  know  what  to  do.  They  didn't  know  they  could  come  in  to  see 
us.  It  was  a  tragedy.  Fortunately,  that  child  lived.  I  would  imagine 
there  are  a  lot  more  that  don't  make  it. 

Mr.  DiNGELL.  I  agree,  this  is  an  important  issue,  but  let's  come 
back  to  the  situation  of  preexisting  conditions.  They  walk  into  a 
hospital,  and  you  are  stuck  with  the  bill  because  the  carrier  simply 
will  not  pay  the  bill  to  cover  preexisting  conditions,  is  that  right? 

Mr.  McDoNOUGH.  That  is  correct.  We  are  a  community  hospital. 
We  have  to  provide  the  service. 

Mr.  DiNGELL.  The  same  thing  would  happen  to  the  doctor,  would 
it  not? 

Mr.  McDoNOUGH.  Yes. 

Mr.  DiNGELL.  If  you  were  seeing  this  patient  on  an  outpatient 
basis  for  that  condition,  all  of  a  sudden  you  might  find  that  condi- 
tion was  no  longer  covered,  and  he  would  not  have  eligibility  for 
treatment  under  the  policy,  nor  would  you  feel  able  to  pay  for  con- 
tinuing services,  which  you  are  under  the  law  obligated  to  provide, 
isn't  that  so? 

Mr.  McDoNOUGH.  We  are  legally  obligated.  We  are  also  morally 
obliged.  We  don't  turn  anybody  away. 

Mr.  DiNGELL.  Well,  Dr.  Adamany,  Ms.  McParland,  Mr.  Foster, 
Mr.  McDonough,  we  thank  you  for  your  invaluable  assistance  to 
the  committee.  We  know  you,  Mr.  Foster  and  Mr.  McDonough, 
have  come  some  distance,  and  we  thank  you  for  your  valuable 

The  Chair  announces  the  next  panel  will  be  composed  of  Dr.  Su- 
zanne Adelman,  Past  President,  Michigan  State  Medical  Society, 
and  Mr.  Richard  Hiltz,  representing  the  Michigan  Hospital  Asso- 
ciation, President  and  Chief  Executive  Officer  of  Mercy  Memorial 
Hospital,  Monroe,  Michigan.  I  am  pleased  to  report  that  is  in  the 
16th  district. 

Dr.  Adelman,  Mr.  Hiltz,  we  thank  you  for  being  with  us,  and  also 
your  associate.  We  will  recognize  you  for  such  statements  as  you 
choose  to  give  us,  starting  with  Dr.  Adelman. 



Ms.  Adelman.  Thank  you  very  much,  Congressman  Dingell,  Mr. 
Chairman.  We  have  submitted  a  statement  which  I  would  Hke  in- 
corporated into  the  record. 

Mr.  Dingell.  Without  objection,  your  full  statement  will  appear 
in  the  record,  and  we  will  recognize  you  for  such  statement  you 
choose  to  make. 

Ms.  Adelman.  Thank  you.  I  would  like  to  make  some  comments 
selected  from  that  testimony,  and  also  make  some  additional  com- 
ments, if  I  may. 

The  problems  we  are  facing  in  Medicaid,  I  think,  have  been  dis- 
cussed at  some  length  today.  The  ones  I  heard  being  discussed  are 
not  the  only  problems,  there  are  even  more.  I  would  like  to  bring 
up  some  additional  problems,  and  also  to  suggest  some  directions 
that  we  would  like  to  look  to  for  the  future. 

Just  to  enlarge  upon  my  own  background,  I  am  immediate  past 
president  of  the  Michigan  Medical  Society.  I  am  a  pediatric  sur- 
geon, I  have  an  office  down  the  street.  I  used  to  live  next  door  to 
this  building  for  15  years,  and  my  husband  is  a  law  professor  that 
works  across  the  mall  from  here. 

I  also  practice  at  Children's  Hospital  of  Michigan  and  Oakwood 
Hospital.  My  practice,  including  patients  paid  for  directly  by  Med- 
icaid and  paid  for  by  Medicaid  HMO's,  is  approximately  60  percent 
Medicaid,  so  I  am  well  aware  of  the  problems  we  are  discussing. 

The  problems  we  are  primarily  discussing  today  I  think  center 
around  Access  to  Care  and  the  cost  of  care.  The  AMA,  looking  at 
this  problem,  has  attempted  to  come  up  with  some  suggestions,  and 
I  would  like  to  enlarge  upon  just  a  few  of  the  proposals  in  the 
AMA's  Access  to  Care  program. 

The  AMA  Access  to  Care  proposal  does  begin  by  asking  for  major 
Medicaid  reform,  specifically  extending  coverage  to  at  least  100 
percent  of  the  poverty  level.  It  also  asks  for  addressing  some  of  the 
disincentives  for  physicians  to  take  care  of  patients  on  Medicaid  by 
at  least  reimbursing  at  the  same  level  of  Medicare. 

The  particular  care  that  Congressman  Conyers  pointed  out  of  the 
difficulties  of  physicians  working  in  the  inner  city  are  made  consid- 
erably worse  by  the  very  high  percentage  of  Medicaid  patients,  the 
very  low  compensation  of  Medicaid  patients,  is  about  33  cents  on 
the  dollar,  and  the  very  high  risk  of  liability  suits,  Wayne  County 
being  the  fourth  worst  region  in  the  country.  It  is  an  exceptionally 
unfavorable  situation. 

The  other,  if  you  like,  pillar  of  the  AMA  proposal  is  requiring 
employer  provision  of  health  insurance.  We  are  very  well  aware  of 
the  difficulties  from  small  business  and,  in  fact,  small  business  and 
employees  of  small  business  are  the  key  to  some  of  the  additional 
problems  with  Medicaid. 

We  have  particularly  the  experience  in  Michigan  of  employees  of 
small  business,  mom-and-pop  stores,  gas  stations,  et  cetera,  who 


find  that  their  employers  cannot  or  will  not  provide  insurance,  and 
for  that  reason,  these  people  find  that  they  need  to  use  Medicaid  as 
the  insurer  of  last  resort.  There  is  a  significant  burden  of  Medicaid 
patients  that  comes  from  this  source,  people  who  are,  in  fact,  em- 
ployed and  who  have  found  ways  of  getting  Medicaid  to  reimburse 
their  care,  and  that  is  something  that  needs  to  be  understood,  and 
it  is  a  direct  result  of  the  fact  they  don't  have  insurance  supplied 
through  their  employer. 

In  order  to  make  it  possible  for  their  employers  to  cover  them, 
there  are  a  variety  of  things  that  can  be  done,  many  of  them  are 
insurance  reforms,  purchasing  pools,  community  rating.  There  are 
a  number  of  things  that  are  already  out  there  and  well-known  and 
well-recognized;  tax  incentives,  changes  in  the  tax  system. 

For  those  who  are  simply  uninsurable,  we  would  like  to  see  State 
level  risk  pools  in  all  States.  There  are  a  variety  of  ways  these  can 
be  subsidized.  In  fact,  some  States  are  already  doing  that  for — I 
think  it  is  for  the  uninsured,  and  that — otherwise  uninsured,  and 
in  some  States,  in  11  States  today,  these  are  in  existence  and  they 
are  subsidized  by  State  tax  credits. 

We  do  feel  Medicare  reform  is  necessary  and  have  a  list  of  pro- 
posals for  that,  and  we  also  feel  long-term  care  coverage  needs  to 
be  taken  out  of  Medicaid  and  separately  financed. 

As  far  as  professional  liability  reform,  there  are  quite  a  number 
of  proposals  that  we  have,  most  of  them  appear  in  either  Nancy 
Johnson's  bill  or  the  Hatch  bill,  and  I  think  if  you  look  at  the  pro- 
visions of  that  bill,  you  will  see  the  kernel  of  suggestions  we  would 
like  to  make. 

In  addition,  there  are  other  suggestions  that  have  been  made 
that  are  specific  to  Medicaid,  and  these  include  various  ways  of  in- 
demnifying physicians  or  protecting  physicians  from  the  full  liabil- 
ity of  taking  care  of  Medicaid  patients.  While  nobody  wishes  to  de- 
prive Medicaid  patients  of  the  right  to  sue,  it  would  be  a  far  differ- 
ent matter  if  the  suit  were  directed  against  the  State. 

If,  therefore,  the  physicians  were  employed  under  contract  or 
were  taking  care  of  the  patients  in  public  health  clinics  under  a 
contractual  arrangement  with  the  insurance  provided  by  the  clinic 
for  that  line  of  service,  then  that  would  mean  the  suit  would  be 
against  the  State.  The  State  would  soon  become  conscious  of  the 
level  of  financial  exposure  involved  and  would  soon  have  additional 
understanding  of  the  need  to  enact  comprehensive  professional  li- 
ability reform. 

The  additional  suggestions  that  have  been  made  include  ways  to 
make  insurance  portable.  The  real  pressure  right  now — one  of  the 
many  real  pressures  for  reform  of  the  health  care  system  comes 
from  unemployment  and  the  threat  of  unemployment,  the  threat  of 
closure  of  the  Willow  Run  factory  and  the  threat  to  people  who 
have  otherwise  been  working  and  uncovered  faced  with  losing  their 

If  insurance  were  portable,  this  would  be  less  of  a  concern.  There 
are  a  variety  of  ways  to  try  to  make  this  portable.  One  is  to  prohib- 
it pre-existing  condition  exemptions,  to  prohibit  waiting  periods,  to 
make  the  insurance  continue  for  a  certain  number  of  months  after 
employment,  and  there  are  some  additional  ways  which  I  have  in 
my  notes  and  I  don't  see  them  right  now. 


At  any  rate,  there  are  a  number  of  ways  to  prevent  the  new  em- 
ployer from  excluding  the  patient  from  insurance  and  to  make  the 
insurance  that  came  through  the  old  employer  continue  on.  There 
are  other  ways,  of  course,  of  setting  up  health  insurance  IRA's, 
which  would  be  in  themselves  portable.  If  these  were  set  up  and 
financed,  either  through  tax  credits,  through  the  employers, 
through  vouchers — there  are  a  whole  variety  of  ways  these  could 
be  set  up,  then  the  health  insurance  IRA  would  move  with  the  pa- 
tient or  the  beneficiary  and  would  not  be  tied  to  the  previous  em- 
ployer at  all. 

The  problems  in  Michigan  with  Medicaid  are  similar  to  the  prob- 
lems in  many  other  States.  We  have  heard  many  of  them.  As  an 
example  of  the  extent  of  the  problem,  there  are  today  only  a  hand- 
ful of  obstetricians  and  only  a  handful  of  pediatricians  able  to  stay 
in  practice — in  private  practice,  and  take  Medicaid  patients  in  the 
city  of  Detroit.  | 

Again,  Congressman  Conyers  has  asked  why  that  should  be,  and  i 
why  people  don't  stay  in  the  city,  and  I  could  point  out  people  like, 
for  instance.  Dr.  Herman  Gray,  who  now  works  for  the  State  for 
Medicaid,  who  was  in  practice  down  the  hall  from  me  as  a  pediatri- 
cian,  one  of  the  most  respected  pediatricians  at  Children's,  very  j 
greatly  beloved,  and  had  to  give  up  his  practice.  He  had  to  support 
his  family.  He  had  to  close  his  office  and  seek  employment  with  the 
State.  He  just  quit. 

At  the  low  point  of  the  financial  level  of  my  practice,  there  is  no 
question  the  reason  my  practice  remained  financed  is  because  I  am  j 
married  to  a  law  professor.  Had  I  not  had  that  cushion,  I  would  not 
have  been  in  practice  anymore.  | 

The  administrative  problems  with  Medicaid  have  been  comment-  i 
ed  upon.  I  might  point  out,  there  is  an  additional  wrinkle  to  the  | 
administrative  problems  of  Medicaid  that  I  can  tell  you  about  from  [ 
experience.  That  is,  we  have  payment  on  Medicaid  patients,  both  | 
from  the  State  and  also  from  the  so-called  Medicaid  HMO's,  and  it  | 
is  worth  commenting  on  the  difference.  I 

The  State,  I  will  tell  you,  if  you  know  how  to  tell  Medicaid  and  i 
you  are  experienced,  the  State  pays  reasonably  soon.  For  people  i 
who  aren't  too  familiar  with  it — our  expectations  aren't  very  high.  ' 
We  don't  expect  much  in  our  office,  but  they  do  eventually  pay. 

However,  the  Medicaid  HMO's  have  a  far  worse  track  record,  j 
They  go  on  for  significantly  larger  numbers  of  weeks,  in  many  in-  I 
stances  need  a  lot  more  telephone  calls  and  requests  for  payment. 
We  would  be  delighted  if  the  HMO's  would  pay  in  45  days.  We  also 
see  the  Medicaid  HMO's  imposing  more  red  tape  than  regular  Med- 
icaid itself. 

We  see  the  need  for  more  pre-authorization,  more  phone  calls. 
We  see  more  patients  being  directed  to  specialists  of  their  choice, 
which  may  or  may  not  be  the  ones  that  we  would  choose.  We  see 
skimming.  We  see  patients  who  can  be  taken  care  of  at  a  certain 
amount  of  profit,  let's  say,  by  the  tertiary  hospitals,  sent  to  the 
cheapest  possible  hospitals,  and  only  the  most  expensive  patients 
being  sent  to  the  tertiary  hospitals.  They  have  no  way  of  making 
up  for  their  losses  on  the  expensive  cases.  i 

As  we  look  at  directing  more  of  our  patients  into  managed  care 
programs,  we  are  talking  about  directing  more  of  our  patients,  in 



many  instances,  into  Medicaid  HMO's,  and  we  have  more  problems 
with  Medicaid  HMO's  in  terms  of  quality,  in  terms  of  billing,  in 
terms  of  paperwork  than  we  do  in  Medicaid. 

One  of  the  things  that  is  a  success,  and  I  am  very  proud  of 
having  a  part  in  starting  it,  is  the  Primary  Sponsor  Plan.  It  is 
about  10  years  old.  Looking  at  the  control  of  health  care  costs  in 
Wayne  County,  where  it  has  started  as  a  pilot  project,  the  health 
care  costs  are  14.3  percent  lower  than  in  the  fee-for-service  pa- 

The  hospitalization  is  lower.  It  means  more  people  are  going  to 
see  a  doctor,  not  the  emergency  room.  There  are  8  percent  lower 
emergency  room  visits.  This  is,  even  though  the  patient  population 
in  the  Primary  Sponsor  Plan  have  been  selected— the  people  have 
been  directed  into  that  program  as  much  as  possible  who  have  a 
greater  need  for  health  care  than  the  fee-for-service  population. 

Again  looking  at  it  in  terms  of  quality,  has  been  very  satisfactory 
also.  The  quality  appears  to  be  a  bit  higher  in  the  Primary  Sponsor 
Plan  than  in  the  fee-for-service  program.  The  Primary  Sponsor 
Plan  is,  in  fact,  a  gatekeeper  plan  in  which  these  patients  are  going 
primarily  to  private  physicians  who  are  being  paid  fee-for-service, 
but  also  a  $3-per-patient-per-month  capitation  rate  for  case  man- 
agement and  for  being  assured  to  be  available  for  24  hours  a  day. 

Patients  cannot  go  to  the  emergency  room  unless  they  have  the 
OK  of  Primary  Sponsor.  Having  overcome  considerable  legislature 
objection  in  many  quarters,  it  is  now  being  extended  and  will  be 
offered  throughout  the  State.  It  is  similar  to  the  program  in  Arizo- 
na which  Congressman  Dingell  knows  about  and  has  incorporated 
in  previous  testimony. 

In  fact,  when  we  were  developing  the  Primary  Sponsor  Plan,  we 
were  in  Arizona  telling  them  about  it,  and  they  got  theirs  up  and 
running  before  ours  got  started.  The  Arizona  plan,  as  well  as  ours, 
are  two  of  the  successful  ones  in  the  country. 

Missouri  also  has  a  successful  plan  of  a  similar  nature.  Monroe 
County,  in  Rochester,  New  York,  my  hometown,  tried  it,  failed  it. 
New  Jersey  tried  it  but  it  was  voluntary  and  it  failed.  Minnesota 
tried  it.  They  also  had  difficulties.  Florida  tried  it  and  got  into  a  lot 
of  difficulties,  low  capitation  rates,  legal  delays  and  a  bunch  of  has- 

These  programs  have  not  worked  in  every  State  where  they  have 
been  tried,  but  the  ones  that  did  it  the  way  we  did,  with  good  pa- 
tient education,  with  good  physician  education  and  with  good  coop- 
eration of  the  physician  community  and  recipient  community,  have 
done  well.  The  ones  that  have  not  done  well  are  the  ones  that  tried 
to  be  voluntary,  had  adverse  selection  and  ran  into  State  problems 
with  rate-setting. 

As  far  as  voluntary  programs,  charitable  programs,  I  also  have 
considerable  experience  with  that,  having  started  a  free  clinic 
many  years  ago  in  the  Jeffries  project,  which  is  still  going  and  been 
incorporated  into  an  HMO  and  have  been  involved. 

We  do  have  project  HOW  set  up  by  Wayne  Health.  It  goes  to 
church  parking  lots  and  delivers  primary  care  and  has  a  tertiary 
care  network  of  supporting  people.  Clearly,  the  problem  with 
health  on  wheels,  it  is  too  small.  Voluntary  programs  are  never 
going  to  cover  the  waterfront.  A  combination  of  voluntary  pro- 


grams  and  community  health  care  centers,  particularly  if  you  had 
professional  liability  care  protection  for  the  physicians,  is  reasona- 
ble and  a  viable  consideration  which  I  do  recommend  to  you. 

The  sum  of  what  I  believe  I  am  recommending  would  be  Medic- 
aid reform;  be  very  mindful  of  the  problems  that  you  are  asking  for 
if  you  force  patients  into  managed  care  programs  such  as  Medicaid 
HMO's  that  we  have  in  town.  Certainly,  some  work  better  than 
others,  but  you  do  run  into  unexpected  difficulties  with  those.  The 
Primary  Sponsor  Plan  is  a  model  which  is  working  extremely  well, 
which  we  would  commend  to  you. 

We  would  ask  for  small  business  reforms  which  would  allow 
small  businesses  to  provide  insurance  for  their  employees  with 
State  risk  pools  to  cover  those  who  are  unable  to  fit  into  the  em- 
ployer-provided insurance.  Those  are  medically  uninsurable,  or  em- 
ployers simply  can't  insure  them. 

There  are  a  variety  of  insurance  reforms  whose  importance 
cannot  be  discounted.  The  importance  of  community  rating  can't  be 
overemphasized.  The  importance  of  eliminating  pre-existence  and 
having  coverage  after  someone  loses  employment.  Those,  in  them- 
selves, would  make  insurance  almost  completely  portable. 

Professional  liability  reform  cannot  be  overemphasized.  Physi- 
cians are  afraid  to  practice  in  Wayne  County.  They  are  leaving 
Wayne  County.  It  is  because  of  professional  liability,  and  it  is  be- 
cause there  is  no  way  to  cover  the  costs  of  professional  liability 
with  the  high  percentage  of  Medicaid  patients. 

I  think  we  have  gotten  rid  of  the  myth  that  Medicaid  patients 
sue  more.  Nevertheless,  they  are  being  covered  by  Medicaid,  which 
pays  much  less  than  any  other  insurance,  so  if  you  have  to  pay  pre- 
miums of  $60,000  or  $80,000  a  year,  you  have  to  get  the  money 
from  someplace.  Not  everybody  is  married  to  a  lawyer. 

There  is  another — there  is  another  thought  which  is  a  very  inter- 
esting thought,  and  I  will  not  try  to  take  personal  credit  for  that, 
and  it  comes  from  the  Heritage  Foundation,  whose  thinking  you 
may  or  may  not  like,  but  it  is  a  very  fascinating  concept,  and  that 
is  of  refundable  tax  credits  and  refundable  deductibles,  and  that  is 
covering,  for  instance,  a  variety  of  ways  this  can  work,  but  you  can 
have  high  deductibles  on  your  insurance  which  can  be  paid  for  by 
the  government  by  vouchers,  prepaid. 

If  you  have — this  can  work  for  poor  just  as  it  can  for  people  who 
have  private  insurance.  If  you  have  a  deductible — $5,000,  you 
prepay  it,  poor  people  can't  pay  the  money,  obviously;  you  put  the 
money  into  an  account,  it  is  prepaid.  They  then  would  pay  for  the 
services  of  lesser  costs  out  of  this  sum  of  money,  so  it  is  there.  They 
can  pay  for  it. 

They  don't  have  to  go  around  humiliating  themselves.  They  can 
pay  for  it.  But  if  they  don't  need  all  that  money,  then  they  get  it 
back  at  the  end  of  the  year.  So,  they  have  an  incentive  to  watch 
their  payments  and  costs  themselves. 

They  don't  need  a  bunch — the  health  care  plan  doesn't  need  to 
pay  a  bunch  of  utilization  nurses  to  watch  the  pocketbook.  They 
would  rather  pay  it  themselves.  If  they  need  the  care,  they  will 
then  pay  for  it.  It  is  a  very  interesting  thought,  regardless  of  the 
source,  which  I  think  takes  some  study  and  bears  some  consider- 
ation, and  I  recommend  it  to  you. 


I  think  it  is  important  again  to  emphasize  pulling  the  finance  of 
long-term  care  and  catastrophic  care  out  of  Medicaid.  It  doesn't 
belong  there.  It  is  overloading  it.  We  have  considerably  more  mate- 
rial, including  recommendations  and  suggestions  for  cost  contain- 

The  current  thinking  and  the  current  effort  on  the  part  of  orga- 
nized medicine  is  strengthening  the  cost  containment  piece.  There 
is  quite  a  bit  prepared  we  would  like  to  share  with  you.  It  includes 
physicians  sharing  price  information,  insurance  companies  making 
coverage  limits  known;  cost  sharing,  which  has  to  be  pre-funded, 
and  a  whole  variety  of  other  ideas.  I  think  I  will  stop  right  now, 
and  I  will  be  very  glad  to  answer  questions.  Thank  you. 

Mr.  DiNGELL.  Doctor,  thank  you  very  much. 

[The  prepared  statement  and  attachment  of  Ms.  Adelman  follow:] 

58-688  0-92-10 


of  the 

Michigan  State  Medical  Society 
to  the 

Subcommittee  on  Oversight  and  Investigations 
Committee  on  Energy  and  Commerce 
United  States  House  of  Representatives 

Presented  by 

Susan  Hershberg  Adelman,  MD 

Re:     Access  to  Health  Care 

February  27,  1992 

Mr.  Chairman  and  Members  of  the  Committee: 
My  ncune  is  Susan  Hershberg  Adelman,  MD.     I  cun  a  pediatric 
surgeon  practicing  in  Detroit  and  also  am  the  Immediate  Past 
President  of  the  Michigan  State  Medical  Society  (MSMS) .    MSMS  is 
pleased  to  have  the  opportunity  to  testify  concerning  the 
important  issue  of  access  to  health  care  for  Medicaid 
beneficiaries  and  the  working  poor. 

My  testimony  is  divided  into  three  parts.     In  the  first 
section,  I  discuss  the  views  of  MSMS  concerning  the  issue  of 
access  to  care  in  general.    The  second  section  focuses  on  the 
specific  problems  and  concerns  with  the  Michigan  Medicaid 
program.     The  final  section  discusses  the  Physician  Sponsor  Plan, 
an  innovative  program  that  provides  cost  effective,  quality  care 
for  Medicaid  beneficiaries  in  Michigan. 


Approximately  35  million  Americans  do  not  have  either 
private  or  government-funded  health  insurance.    A  large  majority 
of  the  uninsured,  both  in  Michigan  and  throughout  the  country, 
are  working  Americans  and  their  families.    Most  of  the  remaining 
uninsured  are  unemployed  persons  and  their  families  who  are  below 
the  federally  established  poverty  level  but  are  not  covered  by 

MSMS  strongly  supports  Health  Access  America,  the  AMA's 
proposal  to  provide  universal  access  to  affordable,  quality 
health  care  for  all  Americans.     I  have  included  a  summary  of 
Health  Access  America  with  my  testimony.     Two  of  the  key 
principles  of  Health  Access  America  are  reforming  Medicaid  to 
provide  uniform  adequate  benefits  to  all  persons  below  the 
poverty  level  and  requiring  all  employers  to  provide  adequate 
health  insurance  coverage  for  all  full-time  employees  and  their 
families.     Both  of  these  principles  are  discussed  in  detail 


A  major  problem  with  the  Medicaid  program  is  that  only 
about  40%  of  Americans  with  incomes  below  the  poverty  level  are 
covered  by  the  program.    Under  Health  Access  America,  new 
national  requirements  would  be  established  to  assure  that  all 
persons  below  the  poverty  level  would  be  eligible  for  and  receive 
a  uniform  set  of  adequate  health  benefits.     The  uniform  benefit 
package  would  consist  of  those  services  currently  required  by 



Medicaid  plus  prescription  drugs,  rehabilitative  services,  and 
emergency  services.     Each  state  should  be  permitted  to  cover 
additional  benefits  beyond  the  uniform  benefit  package  at  its  own 
expense.     Since  the  cost  of  covering  all  persons  below  the 
poverty  level  would  be  considerable,  a  phased  in  approach  may  be 

Another  significant  problem  with  Medicaid  is  low 
reimbursement  levels  for  physicians,  hospitals  and  other 
providers.     Inadequate  reimbursement  reduces  access  to  care  for 
Medicaid  beneficiaries.     In  order  to  improve  access.  Health 
Access  America  provides  that  Medicaid  reimbursement  should  be 
increased  to  at  least  Medicare  levels. 

A  growing  burden  on  state  Medicaid  programs  is  the  cost  of 
providing  long-term  care  for  the  elderly  as  increasing  numbers  of 
senior  citizens  are  forced  to  spend  down  their  assets  in  order  to 
qualify  for  Medicaid  coverage.    MSMS  believes  that  private  sector 
coverage  for  long-term  care  should  be  encouraged  through  tax 
incentives  and  an  asset  protection  program  with  Medicaid  coverage 
provided  only  for  persons  below  the  poverty  level.     Expansion  of 
private  sector  coverage  would  reduce  the  pressure  on  state 
Medicaid  programs.     Expanding  long-term  care  financing  to  the 
private  sector  is  another  key  provision  of  Health  Access  America. 

By  mandating  expansions  to  the  Medicaid  program.  Congress 
has  succeeded  in  increasing  access  to  care  for  many  low  income 
persons.    While  MSMS  supports  expanding  access  to  care,  it  is 
unfair  for  Congress  to  mandate  states  to  provide  coverage  without 



providing  adequate  funding,  particularly  in  these  tough  economic 
times . 


The  second  key  element  of  Health  Access  America  is  to 
require  all  employers  to  provide  all  full-time  employees  and 
their  families  with  health  insurance  coverage.     Under  this 
proposal,  coverage  would  be  made  portable  by  eliminating 
exclusions  for  pre-existing  conditions,  decreasing  waiting 
periods  before  coverage  becomes  effective,  requiring  community 
rating  and  mandating  that  employers  offer  an  open  enrollment 
period  for  employees  who  lose  coverage  under  a  spouse's  health 
plan.     In  order  to  ease  the  burden  on  businesses,  the  requirement 
should  be  phased  in  over  several  years  with  only  larger 
businesses  being  subject  to  the  requirement  initially.  In 
addition,  tax  credits  should  be  provided  and  risk  pools  created 
so  that  new  and  small  businesses  can  afford  the  cost  of  providing 
health  insurance  coverage  for  their  employees.     The  AMA  is 
working  to  develop  reasonable  cost  containment  measures  which 
would  not  negatively  affect  the  quality  of  patient  care. 


MSMS  strongly  supports  the  goal  of  the  Medicaid  program  - 
to  provide  health  care  for  indigent  women  and  children.  However, 
because  of  the  many  serious  problems  with  the  Medicaid  program  in 
Michigan,  this  laudable  goal  is  not  being  achieved.    MSMS  refers 
to  this  as  "The  False  Health  Care  Promise  of  Medicaid." 

I  should  first  of  all  state  that  about  60%  of  my  patients 



are  Medicaid  beneficiaries,  so  I  am  personally  aware  of  many  of 
the  problems  with  the  Medicaid  program.    These  problems  include 
unconscionably  low  reimbursement,  cumbersome  regulatory 
requirements  and  the  extremely  unfavorable  medical  liability 
climate  in  the  state.    These  shortcomings  have  created  serious 
access  problems,  particularly  in  the  important  area  of  primary 
care.     For  example,  in  Detroit  only  a  handful  of  obstetricians 
and  pediatricians  in  private  practice  still  provide  care  for 
Medicaid  patients. 

Medicaid  currently  pays  only  abut  50%  of  what  it  is 
charged  for  physician  services.    As  a  result,  the  percentage  of 
Michigan  physicians  who  take  care  of  Medicaid  patients  has 
decreased  significantly  over  the  past  several  years.    We  are 
pleased  by  the  recent  increase  of  15%  in  Medicaid  physician 
reimbursement  that  became  effective  on  December  1,  1991. 
However,  despite  this  increase.  Medicaid  physician  reimbursement 
is  still  less  than  70%  of  Medicare  reimbursement  and  thus  is  not 
adequate  to  ensure  access  to  care  for  Medicaid  beneficiaries. 
We  are  also  concerned  that  the  15%  increase  may  be  short  lived. 
The  increase  was  made  possible  only  through  a  voluntary 
contribution  program  which  may  be  prohibited  after  1992.    We  urge 
Congress  to  pass  legislation  that  would  allow  states  to  continue 
to  use  voluntary  contributions  to  help  fund  Medicaid. 

In  addition  to  inadequate  reimbursement,  physicians  who 
participate  in  the  Medicaid  program  encounter  cumbersome 
regulatory  processes.     Specifically,  physicians  billing  Medicaid 



are  often  faced  with  rejections  and  significant  delays  in 
payment . 

Finally,  physicians  in  Michigan  face  an  extremely  hostile 
medical  liability  climate.    According  to  the  geographic  practice 
cost  index  of  the  new  Medicare  resource  based  relative  value 
scale.  Southeastern  Michigan  has  the  fourth  highest  medical 
liability  costs  in  the  country.     I  have  included  with  my 
testimony  an  article  by  Debbie  Dingell  that  discusses  how  the 
medical  liability  problem  in  Michigan  hurts  access  to  care  for  , 
Medicaid  patients.     I  also  have  included  a  pamphlet  on  medical 
liability  reform  developed  by  MSMS,  the  Michigan  Hospital 
Association  and  the  Michigan  Association  of  Osteopathic 
Physicians  and  Surgeons. 

MSMS  is  also  concerned  regarding  the  elimination  of 
Medicaid  coverage  for  certain  optional  services  in  Michigan.  We 
believe  that  Medicaid  coverage  for  adult  dental  care,  non- 
ambulance  medical  transportation  and  EPSDT  outreach  contracts 
should  be  restored. 

MSMS  is  encouraged,  however,  by  the  success  of  the 
Physician  Sponsor  Plan  (PSP)  in  Michigan.     The  PSP  program  is  a 
managed  care  plan  that  is  the  result  of  a  cooperative  effort 
between  MSMS  and  the  state  Medicaid  program.    Under  the  PSP 
program,  each  patient  selects  a  primary  care  physician  who 
becomes  the  patient's  physician  sponsor.     Physician  sponsors 
agree  to  provide  24  hour  a  day  access  to  care.    The  physician 



sponsor  provides  all  primary  care  and  determines  whether  the 
patient  needs  treatment  from  specialists.    The  physician  sponsor 
receives  a  case  management  fee  of  three  dollars  per  month  for 
each  enrolled  recipient. 

According  to  a  recent  evaluation,  the  PSP  progreun  has 
succeeded  in  reducing  costs  by  over  10%  while  providing  quality 
patient  care.     In  our  view,  this  program  combines  the  best 
features  of  fee  for  service  and  managed  care.     Currently,  the  PSP 
program  is  available  to  Medicaid  beneficiaries  in  Wayne  County 
and  in  two  other  counties.    However,  over  the  next  few  years  the 
program  will  be  made  available  to  all  Medicaid  beneficiaries 
throughout  Michigan.    MSMS  believes  that  other  states  may  be 
interested  in  adopting  the  PSP  progrcun  and  we  will  be  happy  to 
provide  additional  information  concerning  this  program. 


MSMS  believes  strongly  that  the  AMA's  Health  Access 
America  proposal  would  ensure  that  all  Americans  are  provided 
access  to  quality,  affordable  health  care.    We  look  forward  to 
working  with  you  to  ensure  that  the  key  principles  of  Health 
Access  America  are  enacted  as  soon  as  possible. 

I  will  be  happy  to  answer  any  questions  Members  of  the 
Committee  may  have. 


Summary  of  AMA  Proposcri 

The  elements  of  the  AMA  proposed  f\m  may  be  summarized  in  the  following  1 6  points: 

1 .  Increase  access  by  enacting  maior  Medicaid  Reform. 

2.  Increase  access  by  requiring  employer  prxmsim  of  health  insurance. 

3.  Increase  access  by  creating  state-level  risk  pools  in  all  states. 

4.  Maintain  access  and  reduce  costs  for  the  elderly  by  enacting  Medicare  Reform. 

5.  Increase  access  and  reduce  costs  for  the  elderly  by  enacting  necessary  legislation  to 
finance  expanded  long-term  care  coverage. 

6.  Reduce  health  care  costs  through  professional  liability  reform. 

7.  Maintain  quality  and  reduce  costs  through  development  of  professional  practice 

8.  Reduce  health  care  costs  through  altering  the  tax  treatment  of  employee  health 
care  benefits. 

9.  Reduce  costs  by  encouraging  cost-conscious  decisions  by  patients. 

10.  Reduce  costs  by  seeking  innovation  in  insurance  underwriting. 

1 1 .  Maintain  quality  through  expanded  federal  support  for  medical  education,  research  and 
the  National  Institutes  of  Health  (NIH). 

12.  Maintain  quality  and  reduce  costs  through  increased  health  promotion  and  disease 

1 3.  Reduce  costs  and  increase  access  by  amending  ERISA  or  the  federal  tax  code  to  equalize 
treatment  of  self-insured  and  insurance  plans. 

14.  Reduce  costs  and  increase  access  by  repealing  or  overriding  state-mandated  benefit  laws. 

15.  Reduce  costs  by  reducing  administrative  costs  and  paperwork. 

16.  Maintain  quality  and  access  through  encouraging  physicians  to  practice  in  accordance 
with  the  highest  ethical  standards  and  to  provide  voluntary  care. 

Accomplishing  the  goal  of  strengthening  the  American  healdi  care  system  through  the  elements 
contained  in  this  AMA  proposal  will  present  an  enormous  challenge  to  all  concerned.  For  its 
part,  die  AMA  intends  to  move  forward  vigorously  on  legislative  and  other  fronts.  The  AMA 
welcomes  and  encourages  the  support  of  others  to  help  bring  about  an  improved  American 
health  care  system. 


Detroit  Free  Hress.  January  m.  mi^i 

A  medical  Kability  crisis 
puts  Medicaid  babies  at  risk 

By  Debbie  Dingell 

Last  month,  the  Michigan  Oepart- 
ment  of  Public  Health  released 
Michigan's  1989  infant  mortality  sta- 
tistics. Contrary  to  the  national  trend, 
Michigan's  rate  increased;  there  were 
1,645  infant  deaths  in  1989, 103  more 
than  in  1988. 

This  rate  is  unacceptably  high  and 
we  must  do  something  as  a  state  to 
improve  the  chances  of  the  newborn 
child  to  live. 

There  are  numerous  factors  con- 
tributing to  the  rate  of  infant  deaths, 
but  one  very  important  factor  that 
requires  immediate  anention  is  the 
acute  shortage  of  doctors  willing  to 
practice  obstetrics  because  of  con- 
cerns over  medical  malpractice  and 
high  insurance  premiums.  All  Michi- 
gan women  are  affected  by  this  short- 
age, but  low-income  women  in  par- 
ticular are  being  denied  access  to 
important  prenatal  care. 

The  problem  has  been  exacerbated 
in  recent  weeks  by  the  astounding 
$  1 9-million  jury  awardagainst  Hutzel 
Hospital  in  a  medical  malpractice 

At  the  time  of  that  judgment,  there 
were  only  four  private  doctors  in 
Wayne  County  who  agreed  to  treat 
pregnant  Medicaid  patients.  Now  it 
appears  we  will  lose  all  of  them. 

That  means  that  low-income 
women  may  only  be  able  to  get  pre- 
natal care  in  public  health  clinics. 
Those  clinics,  already  overflowing 
with  patients,  simply  cannot  make  up 
for  the  loss  of  private  physicians. 

Clearly,  the  unresolved  malprac- 
tice liability  problem  is  a  growing 
threat  to  the  availability  and  accessi- 
bility of  prenatal  care. 

According  to  the  National  Com- 
mission to  Prevent  Infant  Mortality, 
obstetrical  providers  nationwide  (in- 
cluding family  physicians,  obstetri- 
cians and  certified  nurse  midwives) 
have  been  affected  by  increases  in 
liability  insurance  rates.  Physicians 
are  increasingly  unwilling  to  provide 
maternity  services  to  low-income  and 
Medicaid  patients  because  they  fear 
lawsuits  and  because  of  low  reim- 
bursement rates.  Although  low-in- 
come women  have  higher  health  risks. 

his  crisis  must 
be  addressed. 

the  widely  held  perception  that  the 
poor,  particularly  those  on  Medicaid, 
tend  to  sue  more  often  than  people  in 
other  economic  groups  has  not  been 

According  to  the  American  Col- 
lege of  Obstetricians  and  Gynecolo- 
gists, the  average  cost  of  liability 
insurance  for  obstetricians  in  1987 
was  three  times  higher  than  in  1982. 
During  this  same  time,  12  percent  of 
ob-gyns  terminated  their  obstetrical 
practices,  and  many  others  limited 
the  high-risk  portion  of  their  prac- 

In  response  to  the  growing  threat 
to  the  availability  and  accessibility  of 
prenatal  care,  states  are  examining 
four  potential  solutions: 

■  Supplementing  liability  insurance 
premiums  for  providers  of  obstetri- 
cal care  for  medically  underserved 
areas  and  medically  indigent  patients. 

■  Assuming  the  fmancial  risk  of  large 
malpractice  judgments  against  pro- 
viders who  treat  Medicaid  and  indi- 
gent patients. 

■  Exempting  firom  liability  health 
services  that  are  provided  without 
compensation  or  on  an  emergency 

■  Reforming  the  tort  liability  system 
by  creating  a  no-fault  approach. 

Michigan  legislators  must  recog- 
nize the  significant  impact  the  short- 
age of  prenatal  care  is  having  on  the 
health  of  children.  This  crisis  must  be 

Women  who  are  poor  and  preg- 
nant face  barriers  to  receiving  the 
prenatal  care  that  can  improve  sig- 
nificantly the  health  of  their  babies. 

We  need  doctors  to  care  for 
state  must  take  immediate  action  to 
reduce  the  impact  of  liability  on  ac- 
cess to  prenatal  care. 

Debbie  Dingell,  a  General  Mo- 
tors Co.  executive,  is  chairwoman  of 
Baby  Your  Baby,  a  public -private 
initiative  designed  to  reduce  infant 
mortality  rates. 


Mr.  DiNGELL.  Mr.  Hiltz  and  Mr.  EUstein,  we  welcome  you.  Mr. 
Hiltz,  we  recognize  you. 


Mr.  Hiltz.  Chairman  Dingell  and  members  of  the  committee, 
thank  you  for  being  here  today  and  allowing  us  to  be  here  and  talk 
with  you.  We  appreciate  your  interest  in  the  health  care  issues. 

We  have  a  written  statement  we  have  given  you,  and  I  would 
like  to  give  you  a  brief  summary. 

Mr.  Dingell.  Without  objection,  your  full  statement  will  appear 
in  the  record. 

Mr.  Hiltz.  Thank  you.  The  Michigan  program  long  has  been  rec- 
ognized as  having  one  of  the  best  Medicaid  programs  in  the  coun- 
try, at  least  in  terms  of  coverage  and  benefits. 

Yet,  while  groups  such  as  Public  Citizen  Research  in  Washington 
list  Michigan  as  having  one  of  the  best  Medicaid  programs  in  the 
country,  they  noted  that  was  less  an  endorsement  of  Michigan  than 
an  indictment  of  other  States. 

Michigan's  program  could  have  been  described  in  the  past  as  a 
mile  wide,  but  an  inch  deep  with  broad  eligibility  and  coverage,  but 
limited  access  to  many  services  because  of  the  inadequate  payment 

As  a  result  of  legal  challenges,  some  of  those  rates  have  now 
been  improved,  but  the  State's  fiscal  situation,  and  competing  soci- 
etal demands,  now  place  the  benefit  package  and  coverage  at  risk. 

Last  April,  The  New  York  Times  summarized  a  report  of  the 
Physician  Payment  Review  Commission,  PPRC,  which  found  that 
Michigan,  at  62  percent,  ranked  36th  in  the  country  in  the  percent 
of  Medicare  physician  payment  rates — even  though  that  rate  is  not 
acceptable  to  many  physicians — reimbursed  by  the  State's  Medic- 
aid program.  That  low  rate  of  pa5nnent,  coupled  with  a  nightmare 
of  paperwork  requirements  and  other  road  blocks  to  timely  pay- 
ment, have  served  to  discourage  private  practice  physicians  from 
accepting  new  Medicare  patients  into  their  practices. 

The  end  result  is  that,  for  many  Medicaid  recipients,  the  only 
available  source  of  primary  care  is  the  hospital  emergency  room  or 
outpatient  departments.  Yet,  for  most  services,  the  basis  for  pay- 
ment to  the  hospital  is  the  same  system  of  inadequate  payment 
screens  that  cause  physicians  to  refuse  to  participate.  The  hospi- 
tals' viability  have  been  threatened  by  their  willingness  to  care  for 
Medicaid  recipients. 

The  lack  of  reasonable  payment  standards  and  excessive  bureau- 
cratic practices,  which  require  constant  rebilling  and  follow-up  to 
get  pended  claims  finally  paid,  has  resulted  in  limited  accessibility 
to  services  for  those  covered  under  the  program,  let  alone  for  those 
without  any  insurance. 

The  Health  Care  Financing  Administration,  HCFA,  has  not 
helped  the  situation,  either,  given  its  continued  focus  on  whether 
the  States  are  paying  too  much  by  exceeding  the  upper  payment 
limit,  while  failing  to  develop  standards  to  evaluate  State  plan 
amendments  which  reduce  payment  or  impair  access;  both  of  these 
concerns  are  reflected  in  the  Boren  amendment. 


The  ability  of  Michigan  hospitals  to  make  voluntary  contribu- 
tions to  the  State  in  support  of  Medicaid  during  the  last  2  years 
has  been  crucial  to  continuing  the  program.  I  would  also  add  our 
thanks  to  all  of  you  for  your  support  on  that  difficult  issue. 

While  the  contributions  have  clearly  resulted  in  an  increase  in 
Federal  matching  funds  paid  to  the  State,  they  have  also  allowed 
the  State  to  restore  or  avoid  cuts  in  benefits  and  eligibility. 

The  State  has  also  been  able  to  marginally  improve  physician 
and  outpatient  hospital  payment  rates.  This  will  hopefully  improve 
access  to  primary  care  services,  and  to  make  additional  payments 
to  hospitals  with  a  disproportionate  burden  of  indigent  patients. 
How  the  State  will  fill  this  revenue  gap  after  the  contributing  pro- 
gram ends  is  unknown  at  this  time,  but  remains  a  major  concern  of 
the  MHA. 

Some  suggestions  for  improvement: 

From  a  Medicaid-only  perspective,  there  are  a  number  of  sugges- 
tions we  can  make  to  improve  the  Medicaid  program's  ability  to 
meet  its  objective  of  providing  access  to  low-income  people.  Many  of 
these  proposals  are  likely  to  increase  the  cost  of  the  program  in  the 
short  term,  but  should  result  in  savings  over  the  long  term, 
through  improved  health  status  and  better  care. 

Extend  the  protection  of  the  Boren  amendment  to  clearly  cover 
professional  and  outpatient  hospital  services.  Mandate  standards 
for  HCFA  to  follow  in  evaluating  States'  plan  amendments.  De- 
couple Medicaid  eligibility  from  other  welfare  programs.  Establish 
fair  national  standards  for  eligibility  and  coverage. 

Change  rules  to  allow  States  to  "lock  in"  eligibility  for  at  least  6 
months,  without  requiring  a  waiver,  to  facilitate  enrolling  Medicaid 
recipients  in  capitated,  managed  care  programs.  Address  the  medi- 
cal liability  problem  at  the  Federal  level,  to  reduce  State-by-State 
variation  in  the  cost  of  coverage. 

Change  the  funding  formula  for  Medicaid  to  make  the  formula 
more  equitable.  Simplify  the  data  reporting  requirements  to  make 
the  system  less  costly  to  administer.  Establish  national  standards 
for  claims  submission  and  prompt  pajrment. 

System  reform:  While  we  have  made  a  number  of  recommenda- 
tions to  reform  Medicaid,  the  best  course  of  action  for  Congress  to 
take  is  to  reform  the  entire  health  care  system,  and  to  eliminate  I 
the  need  for  a  separate  Medicaid  and  Medicare  program.  The  MHA  ! 
endorses  the  need  for  broad-based  reform,  including  restructuring  ! 
of  the  delivery  system  into  Community  Care  Networks,  which  re-  j 
ceive  fixed  per  capita  premiums  to  provide  a  basic  set  of  benefits  j 
for  all.  I 

Such  a  plan  would  finally  create  consistent  incentives  for  all  pro-  , 
viders  to  focus  on  efficiently  delivered  preventative  care,  rather  | 
than  the  current  system  of  conflicting  incentives,  and  the  focus  on 
restorative  care. 

We  stand  ready  to  work  with  you  on  meaningful  reforms  and  ap- 
preciate the  opportunity  to  express  our  views.  Thank  you. 

[Testimony  resumes  on  p.  311.]  I 
[The  prepared  statement  and  attachments  of  Mr.  Hiltz  follow:]  I 


6215  West  St.  Joseph  Highway 
Lansing,  Michigan  48917 

Spencer  C.  Johnson 


Thank  you,  Chairman  Dingell  and  members  of  the  Subcommittee,  for  the 
opportunity  to  appear  before  you  today.  I  am  Richard  S.  Hiltz,  President  of 
Mercy  Memorial  Hospital  in  Monroe,  Michigan,  and  Chairman -Elect  of  the  Michigan 
Hospital  Association.  With  me  today  is  Charles  L.  Ellstein,  Group  Vice-President 
for  Health  Delivery  and  Finance  for  the  MHA.  We  appreciate  the  interest  this 
Subcommittee  has  shown  on  the  issue  of  health  care  in  general,  and  the  Medicaid 
program's  ability  to  provide  access  to  necessary  care  for  low  income  people  in 
this  country.  We  are  very  familiar  with  Chairman  Dingell 's  interest  in  health 
care,  and  look  forward  to  the  opportunity  to  work  with  him  and  the  other  members 
of  the  Subcommittee  to  effectuate  necessary  changes  in  our  health  care  system  to 
insure  access  to  cost-effective,  quality  health  care  for  all  our  citizens. 

Michigan  has  long  been  recognized  as  having  one  of  the  "best"  Medicaid 
programs  in  the  country,  at  least  in  terms  of  coverage  and  benefits.  Our  state 
has  taken  advantage  of  most  of  the  federal  options  for  expanding  eligibility  to 
vulnerable  groups,  and  Michigan's  benefit  package  includes  most,  but  not  all, 
optional  services.  Yet,  even  while  groups  such  as  Public  Citizen  Research,  in 
Washington  D.C.,  list  Michigan  as  having  one  of  the  ten  best  Medicaid  programs 
in  the  country,  they  noted  that  was  less  an  endorsement  of  the  Michigan  program 
than  an  indictment  of  the  other  states. 


Hiltz  Testimony 
February  28,  1992 
Page  two 

Michigan's  program  could  have  been  described  in  the  past  as  a  mile  wide, 
but  an  inch  deep,  with  broad  eligibility  and  coverage,  but  limited  access  to  many 
services  because  of  Inadequate  payment  rates.  As  a  result  of  legal  challenges, 
some  of  those  rates  have  now  been  improved,  but  the  state's  fiscal  situation,  and 
competing  societal  demands,  now  place  the  benefit  package  and  coverage  at  risk. 


Last  April,  the  New  York  Times  summarized  a  report  of  the  Physician  Payment 
Reform  Commission  (PPRC),  which  found  that  Michigan,  at  62  percent,  ranked  36th 
in  the  country  in  the  percent  of  Medicare  physician  payment  rates  (even  though 
that  rate  is  not  acceptable  to  many  physicians)  reimbursed  by  the  state's 
Medicaid  program.  That  low  rate  of  payment,  coupled  with  a  nightmare  of 
paperwork  requirements  and  other  roadblocks  to  timely  payment,  have  served  to 
discourage  private  practice  physicians  from  accepting  new  Medicare  patients  into 
their  practices. 

The  end  result  Is  that,  for  many  Medicaid  recipients,  the  only  available 
source  of  primary  care  is  the  hospital  emergency  room  or  outpatient  departments. 
Yet,  for  most  services,  the  basis  for  payment  to  the  hospital  is  the  same  system 
of  Inadequate  payment  screens  that  caused  physicians  to  refuse  to  participate. 
Hospitals'  viability  have  been  threatened  by  their  willingness  to  care  for 
Medicaid  recipients.  The  lack  of  reasonable  payment  standards  and  excessive 
bureaucratic  practices,  which  require  constant  rebilling  and  follow-up  to  get 
pended  claims  finally  paid,  has  resulted  in  limited  accessibility  to  services  for 
those  covered  under  the  program,  let  alone  for  those  without  any  insurance. 


Hiltz  Testimony 
February  28,  1992 
Page  three 

Additionally,  federal  requirements  and  restrictions  limit  the  ability  of 
the  state  to  work  with  providers  to  develop  alternative  approaches  to  providing 
care  to  Medicaid  recipients.  The  federal  waiver  policy  reflects  the  intention 
to  allow  innovative  approaches  while  safeguarding  the  rights  of  recipients  (but 
not  necessarily  providers  -  payment  standards  can  and  are  waived  by  HCFA),  but 
results  in  a  sea  of  reports  and  inquiries  that  drain  available  resources  from 
patient  care  to  administrative  needs. 

The  existence  of  a  minimum  payment  standard  for  hospitals  and  other 
facility  providers,  however  loosely  defined  and  enforced  it  may  be,  has  allowed 
the  MHA  and  other  provider  groups  to  successfully  pursue  their  right  to 
reasonable  payment  for  the  services  to  which  the  standard  applies. 
Unfortunately,  the  Boren  Amendment  does  not  cover  professional  services,  and  its 
applicability  to  hospital  outpatient  services  is  unresolved.  Further,  successful 
legal  challenges  to  hospital  and  nursing  home  rates  have  increased  the  cost  of 
the  program  to  the  state  (and  federal  government).  In  the  context  of  the  current 
economic  downturn,  it  is  understandable,  but  no  more  acceptable,  that  the 
response  of  the  state  has  been  to  cut  benefits,  eligibility,  and  provider 
payments  wherever  possible. 

The  Health  Care  Financing  Administration  (HCFA)  has  not  helped  the 
situation,  either,  given  its  continued  focus  on  whether  the  states  are  paying  too 
much  by  exceeding  the  upper  payment  limit,  which  exists  only  in  regulation,  not 
statute,  while  failing  to  develop  standards  to  evaluate  state  plan  amendments 
which  reduce  payment  or  impair  access,  both  of  which  are  concerns  reflected  in 
the  Boren  Amendment. 


Hiltz  Testimony 
February  28,  1992 
Page  four 

The  ability  of  Michigan  hospitals  to  make  voluntary  contributions  to  the 
state  in  support  of  Medicaid  during  the  last  two  years  has  been  crucial  to 
continuing  the  program.  I  would  also  add  our  thanks  to  you,  Mr.  Dingell,  and  to 
Mr.  Upton  and  other  members  of  the  Subcommittee,  for  your  support  on  that 
difficult  issue.  While  the  contributions  have  clearly  resulted  in  an  increase 
in  federal  matching  funds  paid  to  the  state,  they  have  also  allowed  the  state  to 
restore  or  avoid  cuts  in  benefits  and  eligibility.  The  state  has  also  been  able 
to  marginally  improve  physician  and  outpatient  hospital  payment  rates,  which  will 
hopefully  improve  access  to  primary  care  services,  and  to  make  additional 
payments  to  hospitals  with  a  disproportionate  burden  of  indigent  patients.  How 
the  state  will  fill  the  revenue  gap  after  the  contribution  program  ends  is 
unknown  at  this  time,  but  remains  a  major  concern  of  the  MHA. 


From  a  Medicaid  only  perspective,  there  are  a  number  of  suggestions  we  can 

make  to  improve  the  Medicaid  program's  ability  to  meet  its  objective  of  providing 

access  to  low  income  people.   Many  of  these  proposals  are  likely  to  increase  the 

cost  of  the  program  in  the  short-term,  but  should  result  in  savings  over  the 

long-term,  through  improved  health  status  and  better  care. 

*       Extend  the  protection  of  the  Boren  Amendment  to  clearly  cover 

professional  and  outpatient  hospital  services.  Improved  access  to 
mainstream  primary  care  has  to  result  in  better  quality  care  for 


Hiltz  Testimony 
February  28,  1992 
Page  five 

Mandate  standards  for  HCFA  to  follow  in  evaluating  states'  plan 
amendments,  to  insure  that  states'  assurances  of  meeting  the  Boren 
Amendment  requirements  are  based  on  facts,  not  suppositions. 

De-couple  Medicaid  eligibility  from  other  welfare  programs.  It  is 
time  to  really  make  Medicaid  the  health  program  for  poor  people,  not 
just  for  the  "deserving"  poor. 

Establish  fair  national  standards  for  eligibility  and  coverage,  to 
reduce  the  variability  in  the  program  across  states. 

Change  rules  to  allow  states  to  "lock-in"  eligibility  for  at  least 
six  months,  without  requiring  a  waiver,  to  facilitate  enrolling 
Medicaid  recipients  in  capitated,  managed  care  programs.  Current 
rules  act  as  a  barrier  to  capitated  payment,  since  people  without 
previous  coverage  will  use  more  services  initially  after  becoming 
eligible.  This  makes  capitation  a  losing  proposition  without  a 
chance  to  smooth  the  use  of  services  over  an  extended  period  of 
el  igibil ity. 

Address  the  medical  liability  problem  at  the  federal  level,  to  reduce 
state  by  state  variation  in  the  cost  of  coverage.  Combined  with  more 
reasonable  payment,  this  should  improve  access  to  primary  care,  and 
lower  the  cost  of  defensive  medicine. 

Change  the  funding  formula  for  Medicaid  to  make  the  formula  more 
equitable.  Consideration  should  be  given  to  the  federal  government 
taking  over  funding,  given  the  previous  recommendations  for  uniform 
standards  and  expanded  eligibility. 

Simplify  the  data  reporting  requirements  to  make  the  system  less 
costly  to  administer. 

Establish  national  standards  for  claims  submission  and  prompt 
payment.  Providers  should  not  have  to  wait  for  the  next  fiscal  year 
for  money  to  become  available  to  pay  claims. 


Hiltz  Testimony 
February  28,  1992 
Page  six 


While  we  have  made  a  number  of  recommendations  to  reform  Medicaid,  the  best 
course  of  action  for  Congress  to  take,  is  to  reform  the  entire  health  care 
system,  and  to  eliminate  the  need  for  a  separate  Medicaid  (and  Medicare)  program. 
The  MHA  endorses  the  need  for  broad-based  reform,  including  restructuring  of  the 
delivery  system  into  Community  Care  Networks,  which  receive  fixed  per  capita 
premiums  to  provide  a  basic  set  of  benefits  for  all.  Such  a  plan  would  finally 
create  consistent  incentives  for  all  providers  to  focus  on  efficiently  delivered, 
preventative  care,  rather  than  the  current  system  of  conflicting  incentives,  and 
the  current  focus  on  restorative  care. 

Such  reform  needs  to  include  reforms  to  small  group  insurance  arrangements, 
and  revisions  to  the  tax  treatment  of  premiums  to  achieve  equity  among  employers 
of  all  sizes.  However,  the  MHA  believes  that  reforms  must  also  mandate  universal 
access,  finally  recognizing  health  care  as  a  basic  right  for  all  residents,  just 
as  is  education. 

We  stand  ready  to  work  with  you  on  meaningful  reforms,  and  appreciate  the 
opportunity  to  express  our  views.    We  would  be  happy  to  answer  any  questions. 
Thank  you. 


mioKina'n  ^215  West  St.  Joseph  Highwav 

lT1IUIIiycJ/1  Lansing.  Michigan  48917 

hospital  323  3443 

association  ^'^^p;^^ 


Policy  Staff 

Jane  Deane  Clark'^^ 
Jill  Kneisley  5^ 
Nancy  StruthersV^ 

June  21,  1991 

Medicaid  Physician  Reimbursement 

Source:    "Medicaid  Reimbursement  Policy",  State  Pol  icy  Reports. 
Vol.  9,  No.  8,  April  1991,  pp. 6-9 

State  Pol  icy  Reports  recently  reported  Medicaid  physician  reimbursement 
payments,  by  state,  for  a  doctor  visit  (for  a  recipient  who  has  been  seen  by 
the  doctor  before).    Amounts  of  reimbursement  ranged  from  $45.00  in  Alaska 
down  to  $10.00  in  West  Virginia.    Most  of  the  states  fell  within  the  $15.00  to 
$25.00  payment  range  (see  Table  1,  below). 

Table  1  '  Medicaid  Reimbursement  for  Doctors  Office  Visit,  1989 
Rank      State  Amount  Rank      State  Amount   Rank      State  Amount 

1  Alaska 



New  Mexico 





2  Massachusetts 








3  Nevada 



New  Hampshire 





4  Tennessee 








5  Indiana 








6  Florida 








7  Georgia 






North  Dakota 


8  Kansas 








9  Arkansas 








10  Colorado 








11  Washington 

12  Alabama 






New  Jersey 


13  Hawaii 






New  York 


14  North  Carolina 






West  Virginia 


15  Maine 



Rhode  Island 





16  Maryland 



South  Carolina 





17  Vermont 



South  Dakota 




The  federal  guideline  for  Medicaid  payments,  according  to  the  report,  is 
that  reimbursement  should  be  at  a  level  that  will  allow  enough  providers  to 
deliver  covered  services  to  Medicaid  beneficiaries,  to  the  extent  that  the 
services  are  available  to  the  general  public  in  the  same  geographic  area.  In 
practice,  states  generally  set  payments  to  providers,  rather  than  agreeing 
upon  prices  with  providers,  which  can  limit  the  number  of  providers  available 
that  serve  Medicaid  patients.    Geographic  price  levels  and  the  fiscal 
condition  of  the  state  are  among  the  factors  assumed  to  influence  the  level  of 
Medicaid  payments  set  by  states. 

Another  way  of  illustrating  the  variation  in  Medicaid  physician  payments 
by  state  is  to  present  Medicaid  reimbursement  as  a  percentage  of  the  Medicare 
reimbursement  for  the  same  service  (Table  2,  below).    In  most  states, 
physicians  receive  lower  payments  for  treating  Medicaid  patients  than  for 
treating  Medicare  patients.    In  New  York,  physicians  who  treat  a  Medicaid 
patient  receive  just  30  percent  of  the  amount  they  would  receive  for  treating 
a  Medicare  patient.    Since  low  physician  payments  make  it  difficult  for 
Medicaid  recipients  to  find  a  doctor,  many  turn  to  emergency  rooms  or  other 
expensive  providers  for  treatment,  or  simply  do  not  seek  care.  Raising 
Medicaid  physician  reimbursements  to  Medicare  levels  would  cost  about  $1.3 

Table  2  ;  Medicaid  Physician  Reimbursement  As 

Percent  of  Medicare 

Rank  State 

















62  . 























North  Dakota 












Rhode  Island 



North  Carolina 







































New  Mexico 





South  Dakota 






New  Jersey 






New  Hampshire 



West  Virginia 



South  Carolina 






New  York 



























Medicaid  Percent  of  Gross  Pt.  Revenue 

Michigan,  1985-1989 


S  13.04- 


S  12.5- 

B  11.5- 

i£  11.0- 


1985  1986  1987  1988  1989  1990 
Source:  American  Hospital  Association  Annual  Survey  of  Hospitals 


Medicaid  Inpatient  Utilization  Trends 

Michigan,  1985-1989 






Inpatient  Days  -a"  Admissbns 

Source:  Michigan  Hospital  Assodatbn  Service  Corporation  Interactive  Data  System 


Medicaid  Average  Length  of  Stay  Trends 

Michigan,  1985-1989 

7.0t  1 





19i85  1^86  iSsT  liSs  1^9 

Michigan  Hospital  Association  Sen/ice  Corporation  Interactive  Data  System 


Medicaid  Inpatient  Utilization  Based  on  Expected  Payer  Medicaid  Percent  of  Total  Gross  Revenue 

Michigan  Hospitals  Michigan,  1 980, 1 985-1 990 

Source:  MHASC,  Interactive  Data  System,  1987 

Medicaid  percent  of  gross  revenue 









Days  Admissions 

















































Normal  newborns  are  included  beginning  1 987 






Medcaid  Percent  of  Utilization  Measures 
Source:  MHASC,  Interactive  Data  System 

M'Caid%  r\^Caid% 
ofTotal  ofTotaJ 
IP  Days  Admissions 















*  Hospitals  that  are  in  a  metropofitan  statistical  area 

*•  Hospftab  in  a  nonmetropoTitan  area 

•**  Hoiitals  with  <1 00  Beds,  <4000  Admissions 

Normal  newborns  are  included  begirvwig  1987 



Current  Levels  of  Participation 

Ongoing  Initiatives  to 
Increase  Participation 

Any  provider  who  is  a  Medicaid- 
enrolled  provider  is  auto- 
matically enrolled  as  an  SMP 
provider  and  may  bill  for 
covered  services  rendered  to  SMP 

As  of  December  1991,  there  are 
12,900  MDs 
2,700  DOS 

150  outpatient  hospitals 
enrolled  in  Medicaid. 

The  number  of  enrolled  providers 
is  increasing  from  year  to  year, 
however,  this  alone  does  not 
constitute  adequate  access. 

The  attached  map  indicates  the 
number  of  active  physicians 
(MDs,  DOS  and  clinics)  and 
outpatient  hospitals 
participating  (that  is,  these 
providers  have  submitted  bills 
to  the  Program)  in  each  county. 

Not  all  enrolled  providers  take 
new  patients  or  actively  bill 
Medicaid  for  services. 

Time  is  required  for  clients, 
providers,  and  local  offices  to 
become  knowledgeable  regarding 
new  programs.  Coverages, 
eligibility,  county  author- 
ization, and  billing  were 
primary  concerns.  These 
inquiries  are  lessening. 

-  A  continuing  provider 
participation  work  group  to 
pursue  Medicaid  access  to 
services  including: 

.  researching  provider  hassle 
factors  (e.g.,  unnecessary 
claim  documentation  and 
editing) , 

.  reducing  the  number  of 
pending  claims, 

.  improving  systems,  and 

.  creating  more  user-friendly 
manuals , 

-  increasing  provider 
reimbursement  levels  (e.g., 
15t  increase  in  physician 
and  outpatient  hospital 
fees  effective  December  1, 
1991) . 

-  increasing  memaged  care 





j  Mr.  DiNGELL.  Thank  you.  Mr.  EUstein,  do  you  have  any  com- 
I  ments  you  would  like  to  add? 

1     Mr.  Ellstein.  No.  I  will  be  happy  to  answer  any  questions. 

I     Mr.  DiNGELL.  We  thank  you  all.  The  Chair  recognizes  the  gentle- 

I  man  from  Colorado. 

'  Mr.  ScHAEFER.  Thank  you,  Mr.  Chairman.  This  morning  we  have 
!  been  talking  about  how  can  we  improve  the  system  of  providing 

health  care.  We  appreciate  your  statements, 
j     As  I  stated  before,  I  am  afraid  we  are  going  to  start  losing  more 
'  and  more  doctors  if  we  don't  start  to  reform  that  system.  I  think 

HCFA  has  gone  overboard  in  a  number  of  cases,  in  regards  to  the 

forms  you  have  to  file  and  the  T's  you  have  to  cross. 
I  work  closely  with  a  hospital  association  in  Colorado.  Within  the 

metro  area  we  have  about  12  hospitals.  I  have  asked  them  many 

times,  why  does  each  individual  hospital  have  to  be  an  all-encom- 
I  passing  hospital  that  takes  care  of  every  problem? 

When  you  start  looking  at  the  expense  of  the  various  types  of 

equipment  a  facility  must  have — why  do  we  not  say,  OK,  if  you 
I  have  a  cardiac  problem,  out  of  the  12,  maybe  there  are  3  you 

should  go  to. 

If  you  have  another  type  of  a  problem,  there  is  where  you  go,  so 
each  individual  hospital  could  reduce  its  costs  by  not  providing  all 
essential  elements  to  any  person  that  comes  in.  Has  this  been 
something  you  have  thought  about,  discussed  within  your  hospital 
association  in  the  State? 

Mr.  HiLTZ.  It  is.  I  came  from  a  hospital  that  merged  a  Lutheran 
hospital  and  Catholic  hospital  with  a  great  deal  of  success.  Would 
the  Federal  Trade  Commission  allow  us  to  do  that  today? 

Mr.  ScHAEFER.  I  understand.  It  is  not  something  we  could  not 
correct,  if  we  should  so  desire,  through  legislation  along  this  line. 
You  know  your  business  better  than  I  do,  but  it  just  seems  to  me 
when  you  start  talking  about  overhead  costs  and  employee  costs 
and  everything  else,  if  you  could  specialize  in  certain  areas  that  ev- 
eryone would  know  it  would  help.  If  I  have  this  problem,  this  is 
where  I  go.  If  I  have  another  problem,  I  go  over  here.  You  would 
still  have  a  competitive  situation  within  3  or  4  of  the  hospitals  that 
would  do  the  same  type  of  thing,  so  there  would  not  be  just  one 
hospital  you  would  have  to  go  to. 

It  has  just  been  something  in  the  back  of  my  head.  What  about 
the  FTC?  If  we  are  looking  at  long-term  reduction  in  costs,  I  think 
that  part  could  be  worked  out.  I  just  wanted  to  know  if  this  is 
something  that  has  been  batted  around. 

I  have  talked  to  Larry  Wall  about  this  back  in  Colorado,  and  he 
brought  up  the  same  possible  objection — not  from  his  point,  but 
from  the  FTC. 

Mr.  HiLTZ.  We  have  a  new  president  of  the  American  Hospital 
Association,  Richard  Davidson,  and  one  of  his  messages  is  that  hos- 
pitals have  to  collaborate  and  not  compete. 

This  is  a  major  issue  for  our  State  association.  It  is  one  we  recog- 
nize is  an  industry  problem.  I  think  you  are  going  to  see  the  hospi- 
tal industry  focusing  on  this.  But  we  also,  as  we  have  said,  need 
your  help  in  allowing  us  

Mr.  ScHAEFER.  I  fully  can  understand  that,  but  you  come  and 
say,  hey,  look,  this  is  what  we  have  put  together,  we  would  like  to 


312  j 

do  this  to  hold  our  costs  down,  and  of  course  if  you  are  the  only  | 
hospital  in  Grand  Junction,  Colorado,  that  is  a  different  story,  but  H 
if  you  are  in  a  metropolitan  area,  this  seems  to  me   f 

Mr.  HiLTZ.  You  have  got  a  good  point.  I  think  you  are  going  to  I 
see  much  more  focus.  f 

Mr.  ScHAEFER.  Would  managed  care  provide  a  solution  to  the  \ 
problem  of  private  physicians  in  Michigan  not  serving  Medicaid  pa-  p 
tients?  jd 

Mr.  HiLTZ.  Let  me  answer  with  an  example,  and  maybe  Mr.  Ell-  i| 
stein  can  offer  something  more.  Our  local  daily  newspaper  last  |j 
week  announced  that  two  of  our  obstetricians  are  quitting  deliver-  t 
ing  babies  at  the  end  of  this  month,  end  of  March.  p 

In  1980,  we  had  14  physicians  deliver  almost  1,600  babies.  Last  k 
year  we  had  six  physicians  deliver  900  babies.  We  know  that  at  | 
least  400  moms  had  to  leave  our  county  to  get  prenatal  and  OB  \ 
care.  5 

The  tragedy  is  that  these  two  physicians  who  are  quitting  carry  a  j 
disproportionate  share  of  Medicaid  and  poor  moms.  We  expect  that  I 
that  number  of  400  will  go  to  700,  and  these  are  the  people  who  ] 
can't  afford  to  have  inadequate  prenatal  care.  We  have  got  to  do 
something  about  medical  liability  in  this  country. 

Mr.  Ellstein.  Managed  care  by  itself  is  not  going  to  do  anything 
to  provide  care  to  the  Medicaid  population.  If  you  combine  it  with 
reasonable  payment  levels  and  with  changes  to  the  legal  environ- 
ment within  which  health  care  is  provided,  then  it  should  go  a  long 
way  towards  providing  cost  effective  care  to  the  Medicaid  popula- 
tion. [ 

One  of  the  things  I  learned  in  my  master's  program  course  work  j 
is  that  one  of  the  single  best  things  you  can  do  in  order  to  improve  j 
the  quality  of  care  is  to  let  all  the  providers  providing  care  to  an  j 
individual  let  each  other  know  what  they  are  doing.  j 

Managed  care  provides  a  vehicle  within  which  all  the  care  can  be  I 
coordinated,  but  by  itself  it  is  not  going  to  solve  the  problem.  We  j 
have  to  have  more  collaboration  among  all  the  providers  in  the 
health  care  delivery  system.  ' 

Following  up  on  your  previous  question,  I  might  note  it  was  ex-  } 
actly  1  month  ago  today,  Mr.  Dingell,  that  you  and  I  had  a  lengthy  ' 
discussion  about  the  implications  of  antitrust  in  health  care  and  [ 
the  need  to  follow  up  on  ways  to  allow  more  collaboration.  j 

Subsequent  to  that  conversation,  I  have  had  discussion  with  the  | 
people  in  the  Washington  office  of  the  American  Hospital  Associa-  , 
tion  and  have  urged  them  to  move  quickly  to  identify  the  specific  : 
barriers  that  antitrust  and  Federal  Trade  Commission  present  in  i 
allowing  greater  collaboration  so  we  can  work  with  the  Congress  to  i 
find  ways  to  address  those  problems. 

Mr.  Adamany.  To  comment,  if  I  may,  on  your  question  on  man- 
aged care,  the  problem  is  pretty  much  of  a  dollars  and  cents  prob- 
lem. If  the  average  obstetrician  delivers  150  or  so  babies  a  year, 
and  if  the  premiums  in  the  City  of  Detroit  are  about  $80,000  a 
year — I  forgot  the  calculation,  but  you  can  do  it  while  I  am  talking. 

The  calculation  has  been  that  if  you  take  into  account  the  gener- 
al overhead,  the  general  overhead  of  any  physician's  practice, 
except  for  some  of  the  ones  that  have  very,  very  high  premiums,  is 
about  50  percent,  you  figure  50  percent  overhead — ^by  and  large. 


the  physician  with  a  high  percentage  of  Medicaid  patients  paying 
these  kinds  of  premiums  loses  money  per  delivery.  You  can't  make 
it  up  on  volume. 

So  what  a  managed  care  program  does  is  simply  spread  these 
premiums  so  that  the  premiums  are  being  paid  on  behalf  of  the 
high-risk  specialists  and  the  primary  care  people  by  the  system,  if 
it  is  a  staff  model  system,  so  that  the  patients  then  get  averaged 

Also,  the  earnings  of  the  high-risk  people  and  the  lower-paid 
people  get  averaged  out.  And  with  a  little  bit  of  luck,  they  might  be 
able  to  make  it  financially.  However,  another  way  of  doing  it  is  re- 
adjusting the  payment  system.  And  remember,  we  haven't  seen 
what  will  happen  to  the  resource  based  relative  value  scale. 

That  is  not  just  a  Medicare  phenomenon.  That  will  be  started  in 
Medicaid  in  Michigan  on  April  1.  There  has  been  a  specific  decision 
made  to  allocate  more  money  to  cover  obstetrical  cases,  a  dispro- 
portionate amount  of  money  not  just  going  on  to  the  RVRVS,  but 
adding  to  because  of  the  professional  liability  problems  of  OB/ 
GYN,  and  with  adjustments  in  the  payment  and  with  professional 
liability  relief,  you  ought  to  be  able  to  change  that  ratio  to  make  it 
possible  for  private  physicians  to  continue  to  take  care  of  these  pa- 
tients, which  I  would  submit  would  be  optimal.  I  think  there  is 
room  for  both. 

Mr.  ScHAEFER.  Doctor,  earlier  today  I  made  the  case  that  I  had 
just  been  in  and  had  a  physical  exam  with  my  doctor.  Of  course 
when  Members  of  Congress  come  in  to  their  private  physicians,  you 
get  an  earful  of  the  problems,  and  the  doctor's  wife  is  a  nurse 
there.  And  she  gave  me  the  form  that  has  to  be  filled  out,  created, 
I  believe,  by  HCFA.  They  noted  that  if  there  is  any  kind  of  an 
error  on  it,  it  will  take  you  forever  to  get  it  back,  and  you  are  in 
danger  of  committing  a  felony. 

She  showed  me  the  list  of  the  charges  of  what  they  can  charge 
under  the  system  versus  what  they  would  charge  to  me  or  some- 
body else  who  has  their  own  insurance.  It  was  drastically  lower. 

I  have  repeated  many  times,  and  I  hate  to  keep  repeating,  but  I 
am  afraid  we  are  going  to  continue  to  lose  doctors  to  take  care  of 
Medicaid  patients.  She  said  we  have  some  of  our  patients  coming 
in,  knowing  the  difference,  wanting  to  pay  in  cash  the  difference, 
of  course,  which  they  cannot  take. 

They  want  this  care.  They  want  this  doctor,  but  the  doctor  can't 
afford  to  do  it.  Now,  that  is  a  major  problem  that  has  to  be  recti- 

One  other  question,  Mr.  Chairman,  how  would  the  changes  in 
the  HCFA  waiver  process  help  the  State  to  work  to  develop  alter- 
native approaches  like  Mr.  McNamara's,  in  Wayne  County? 

Mr.  HiLTz.  I  think  if  HCFA  could  give  us  some  encouragement 
and  incentives  and  flexibility,  it  would  go  a  long  way.  With  that, 
Charles,  why  don't  you  respond? 

Mr.  Ellstein.  The  MHA  has  a  task  force  on  Medicaid  reform 
that  has  been  working  with  the  State  for  a  year  now,  trying  to 
identify  ways  that  we  can  change  the  delivery  of  the  care  of  the 
Medicaid  population  to  make  it  more  cost  effective  and  more  effi- 


One  of  the  things  I  have  learned  from  talking  to  my  friends  in  i 
Medicaid,  including  Dr.  Smith,  is  that  even  when  the  State  has  I 
given  a  waiver  to  run  a  program  in  a  particular  county,  every  time  [ 
it  wants  to  expand  that  program  to  the  next  county,  they  have  to  | 
apply  for  another  waiver.  That  is  ludicrous.  , 

Mr.  ScHAEFER.  It  is  almost  like  every  time  a  Medicaid  patient  ' 
comes  to  the  doctor,  they  have  to  make  over  the  form  again.  ! 

Back  in  the  middle  1980's,  the  State  of  Colorado's,  legislature  ' 
passed  what  I  think  is  one  of  the  best  tort  reforms  in  the  States,  , 
when  it  comes  to  the  ability  for  malpractice  suits  to  exist.  It  put  a  ' 
cap  on  what  you  can  go  after.  I 

I  yield  back,  Mr.  Chairman.  i 

Mr.  DiNGELL.  The  time  of  the  gentleman  has  expired. 

Mr.  Upton?  I 

Mr.  Upton.  Thank  you,  Mr.  Chairman. 

I  appreciate  the  panel's  testimony.  More  important,  I  appreciate  , 
your  hard  work  in  the  past  as  well.  | 

Mr.  Hiltz,  you  indicated  in  your  testimony  that  you  wanted  to  . 
reform  the  entire  health  system.  I  couldn't  agree  with  you  more.  In 
my  view,  and  I  think  many  of  my  colleagues  share  this  thought,  we 
ought  to  blow  up  the  whole  system,  blow  it  up,  and  start  over,  and 
put  Humpty-Dumpty  back  together  again,  starting  from  square 

The  other  day,  I  was  curious  to  see  how  many  health  care  bills 
have  been  introduced  in  the  House.  We  have  a  program  in  our 
office  computer  that  pulls  this  up — and  it  pulled  up  more  than 
1,200  bills.  Then  I  typed  in,  Upton  and  health,  and  I  had  four  i 
pages,  some  50  different  bills  that  I  have  cosponsored,  all  involving  | 
some  change  with  the  system  that  we  have.  i 

As  I  look  at  a  lot  of  the  different  health  plans.  Dr.  Adelman — I  | 
appreciate  your  testimony  with  regard  to  health  access,  but  as  I 
look  at  the  plans,  none  of  them  are  perfect.  There  are  good  things 
and  shortcomings  as  well  in  every  plan. 

One  of  the  things  I  would  like  you  to  focus  on  this  afternoon  is 
the  president's  plan,  which  came  out  during  our  last  recess,  and 
didn't  get  a  lot  of  favorable  attention.  But  it  had  some  things  in 
there  that  I  thought  were  important. 

The  vouchers,  they  are  up  to  $3,750,  that  will  take  the  savings  up 
to  the  earner  of  $80,000  a  year.  It  had  some  unspecified  tort 
reform.  Eliminated  preexisting  conditions  after  6  months. 

I  can  tell  you,  I  know  so  many  small  business  people  who  want  to 
provide  health  insurance  to  their  employees,  who  may  have  some 
preexisting  condition,  and  they  are  out  in  the  cold  in  terms  of  what 
may  happen  to  them. 

We  talked  a  little  bit  earlier  about  deductibility  for  small  busi- 
nesses, how  they  are  discriminated  against  because  they  only  get 
25  percent  off  rather  than  100  percent.  Medical  IRA's,  you  talked  a 
little  bit  about  that.  Someone  in  my  office  talked  about  that.  I  sup- 
port that,  pooling  businesses  together  to  look  into  the  savings  costs. 

Obviously,  I  focused  some  of  my  questions,  with  the  previous 
panel,  on  administrative  costs  which  are  a  real  nightmare.  In 
terms  of  dollars  to  the  patient,  a  real  mess. 

!  What  are  some  of  your  thoughts  regarding  specifics  of  the  admin- 
I  istration  plan?  What  elements  do  you  like  from  what  you  have 
I  seen,  what  don't  you  like? 

Mr.  Adamany.  I  think  the  tax  credits  are  

Mr.  Upton.  It  is  actually  a  voucher,  it  is  not  a  credit. 
I  Mr.  Adamany.  It  may  have  many  of  the  characteristics  of  a 
i  credit.  You  think  this  is  probably  a  good  idea.  The  amount  of 
I  money,  however,  being  proposed  does  not  look  adequate. 
I  When  we  look  at  the  cost  of  health  insurance  per  person  or  per 
!  family,  this  just  doesn't  look  like  it  would  touch  it.  So  if  it  were  for 
a  more  adequate  amount  of  money,  I  think  it  would  function  in  an 
entirely  different  way  from  the  way  it  would  function  now. 

In  the  AMA's  health  access  project,  we  talk  about  a  basic  benefit 
package.  If  you  cost  out  the  basic  benefit  package,  I  am  not  sure 
the  amounts  of  money  being  proposed  by  the  President  would  even 
I  cover  a  basic  benefit  package.  If  the  vouchers  were  for  more  so  that 
I  there  were  discretionary  amounts  of  money,  as  we  talked  about 
I  earlier,  that  would  be  in  a  health  IRA,  that  would  allow  the  pa- 
I  tient  to  make  economic  decisions  with  the  incentive  of  having  some 
money  that  might  come  back  to  them  at  the  end  of  the  year,  then 
it  might  work  in  a  way  which  would  actually  help  to  keep  down 
health  care  costs. 

I  was  recently  in  Australia,  and  in  Australia  it  is  very  interest- 
ing what  they  do.  They  simply  deduct  I  think  it  is  $150  every  2 
I  weeks  from  payroll,  and  they  just  give  that.  That  is  the  money  that 
has  to  be  paid  for  health  care.  They  pay  that  to  the  government  for 
i  health  care  of  the  everybody  who  is  not  employed  or  is  on  welfare. 
Their  welfare  is  quite  generous,  and  they  deduct  $150  a  week  from 
the  welfare  payment,  and  that  goes  to  medical  care. 

What  the  Australians  told  me  is,  you  get  Medicaid  for  that,  but  if 
you  have  my  money,  you  have  to  pay  private  insurance  on  top. 
That  is  the  way  their  system  works.  It  is  simple,  logical,  but  obvi- 
ously it  is  not  a  one-tiered  system,  which  is  what  many  of  us  have 
tried  to  say  is  our  objective.  And  I  don't  know  if  it  is  realistic  or 
not,  but  I  think  the  problem — probably  the  big  objection  to  the 
president's  proposal  is  not  necessarily  the  ideas  in  the  proposal,  but 
it  probably  doesn't  go  far  enough. 

Obviously,  we  all  know  that  the  financing  is  floating  around.  But 
the  amount  of  money  that  he  is  asking  the  tax  credits  or  vouchers 
to  cover  just  don't  look  adequate. 
Mr.  Upton.  So  that  would  be  the  biggest  shortfall  that  you  see? 
Mr.  Adamany.  Yes. 

Mr.  Upton.  Do  you  like  the  other  elements? 

Mr.  Adamany.  There  is  a  lot  that  is  good  in  it.  Yes,  I  think  that 
the  professional  liability  part  is  good.  I  don't  think  we  have  a  lot  of 
other  specific  objections,  except  that  it  doesn't  go  far  enough  in  de- 
veloping that  financing  problem,  it  doesn't  go  far  enough  at  all  in 
discussing  where  the  money  could  come  from. 

I  really  think  I  have  got  to  discuss  where  the  money  would  come 
from.  In  the  various  European  health  care  systems,  these  are  usu- 
ally payroll  taxes.  Now,  payroll  taxes  don't  have  to  necessarily  fi- 
nance a  one-payer  system  like  the  Canadian  health  care  system. 
You  can  do  a  lot  of  things  with  payroll  taxes. 


The  advantage  of  payroll  taxes  is  they  spread  the  base  of  financ-  j 
ing  as  widely  as  possible,  they  spread  it  like  Social  Security  does.  ; 
You  can  take  the  payroll  taxes  and  put  them  in  IRA's  if  you  want  i 
to,  or  you  can  have  them  go  to  support  whatever  you  want.  Senator  I 
Kerrey's  bill  has  something  which  looks  like  State  sickness  funds,  i 
which  looks  like  the  German  sickness  fund.  The  Germans  have  dif- 
ferent financing  for  both  systems. 

Payroll  taxes  may  turn  out  to  be  one  of  the  equitable  forms  of 
financing.  But  you  have  got  to  answer  that  question,  and  I  believe 
that  you  have  got  to  sooner  or  later  give  up  the  fantasy  that  you 
are  going  to  cover  the  costs  by  eliminating  all  fraud  and  eliminat- 
ing administrative  waste  and  you  are  going  to  magically  cover  ev- 
erything, because  I  just  don't  think  that  you  are  going  to  get  that  \ 
much  more  efficiency  when  you  federalize  something.  j 

Mr.  ScHAEFER.  Doctor,  what  about  value-added  tax?  ' 

Mr.  Adamany.  Well,  you  know,  economically,  the  objection  to  a  ' 
VAT  is  that  it  is  harder  on  the  poor.  The  burden  falls  on  the  poor.  1 
That  is  why  people  tend  to  have  problems  with  it.  ' 

Where  you  need  VAT's  is  where  you  don't  have  the  ability  to  col- 
lect income  taxes.  One  of  the  advantages  to  taking  the  money  out 
of  the  income  is  that  you  cause  everybody  to  report  their  income,  i 
For  instance,  if  you  put  the  tax  on  the  income  and  then  they  ' 
appear  and  say  they  are  uninsured,  they  appear  at  the  emergency 
room,  they  say  they  don't  have  any  insurance,  we  say,  why,  it 
turns  out  they  didn't  file  any  income  tax.  And  you  probably  could 
flush  out  a  good  deal  of  the  underground  economy  that  way  and  | 
finance  part  of  your  health  care  system.  i 

Mr.  Upton.  Not  all.  | 

Mr.  Adamany.  Not  all. 

Mr.  ScHAEFER.  You  could  flush  it  out  of  the  VAT  tax,  too,  be-  ! 
cause  they  buy  a  lot  of  things.  I 

Mr.  HiLTZ.  While  we  are  talking  about  the  specifics  of  the  Presi-  1 1 
dent's  plan,  I  would  like  to  offer  a  personal  view  of  the  process,  j' 
You  challenge  us,  the  industry,  to  come  back  with  ideas  and  pro-  j 
posals  and  suggestions.  Maybe  I  am  naive,  but  I  have  been  really  jl 
impressed  with  the  State  of  Oregon  and  the  fact  that  they  have  got 
providers,  employers  to  talk  about  meaningful  reform  to  improve 
the  system. 

They  had  to  make  a  couple  of  attempts  at  it,  but  they  finally 
took  it  to  their  people  in  meetings,  and  the  people,  after  modifica- 
tion, endorsed  it  and  said,  yes,  we  would  even  be  willing  to  pay 
more  taxes  if  we  thought  the  system  was  meaningful  and  we  got 
value  for  our  money. 

Don't  shoot  at  them  for  the  process.  Help  them  make  it  better,  i 
and  maybe  let  them  try  it.  I  have  not  seen  anybody  take  as  broad 
an  approach  in  trying  to  reform  a  system  in  health  care  as  they 
have.  And  I  think  they  have  been  conscientious  about  it.  Maybe 
there  are  flaws,  but,  boy,  they  have  done  a  super  job  at  trying  to 
get  everybody  involved. 

Mr.  Upton.  I  appreciate  your  comments.  One  of  the  things  where 
I  think  there  is  a  shortcoming  in  the  administration  plan  is  with 
lack  of  catastrophic  coverage.  I  can  say  for  myself,  when  I  voted  for 
catastrophic  health,  I  also  voted  to  repeal  it  a  couple  of  years  later,  ! 
and  there  were  a  bunch  of  nay-sayers  across  this  land,  as  I  would 


go  back  to  our  district  and  elsewhere,  who  flooded  the  rooms,  the 
town  meeting  halls,  my  mail.  I  have  had  more  mail  to  repeal  that 
than  any  issue  still,  6  years  later.  The  count  was  about  2,000  in 
favor  to  5  against.  Less  than  five  people  asked  that  that  program 

And  what  happened  was,  all  these  different  supposed — I  should 
say  "all" — some  supposed  interest  groups  were  out  there  who 
scared  the  willies  out  of  our  constituents.  And  unfortunately,  later 
on,  we  tried  to  make  it  voluntary  so  that  people  could  sharpen 
their  own  pencil,  and  calculate  how  it  would  impact  their  own 
household,  sit  down  and  try  to  figure  that  out,  and  they  would 
allow  them  to  opt  out  one  time,  and  never  opt  back  in,  to  try  and 
keep  that  program  there.  But  we  were  unable  to  make  that  plan  on 
the  Floor. 

Many  of  us  voted  for  it,  and  it  passed  overwhelmingly  that  year. 
Two  years  later,  it  passed  overwhelmingly  again  to  repeal  it.  One 
of  the  reasons  why  I  think  this  committee  is  taking  time,  careful 
time,  is  because  we  want  to  make  sure  we  have  the  opinions  of 
groups  like  yours,  as  we  blow  up  this  system  and  put  it  back  to- 

I  appreciate  your  testimony  and  I  look  forward  to  working  with 
you  down  the  road. 

Mr.  HiLTZ.  On  catastrophic  coverage,  our  population  is  getting 
older.  We  are  keeping  people  alive  longer.  At  some  point  in  time, 
we  are  going  to  have  to  access  long-term  care. 

Mr.  Lpton.  Thank  you,  Mr.  Chairman. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman. 

The  gentleman  from  Michigan,  Mr.  Conyers. 

Mr.  Conyers.  Mr.  Chairman,  I  have  listened  to  the  testimony 
with  great  interest,  and  I  commend  the  witnesses.  I  don't  have  any 
questions  at  this  time. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman. 

Mr.  Hiltz  and  Mr.  EUstein,  I  remember  discussions  earlier  here, 
particularly  on  the  subject  of  antitrust.  I  would  like  to  come 
around  again  to  a  matter  which  I  think  was  touched  on  in  our  ear- 
lier discussions — ^voluntary  contributions.  I  gather  you  are  a  strong 
supporter  of  that? 

Mr.  Hiltz.  Absolutely. 

Mr.  DiNGELL.  Not  because  of  the  strong  merit  of  that  particular 
proposal,  but  simply  because  it  makes  the  government  pay  a  fair 
percentage  of  the  hospitalization  costs;  is  that  correct? 

Mr.  Hiltz.  Our  State  is  in  difficulty,  as  you  are  well  aware.  This 
is  one  method  we  can  help  participate  to  help  the  State  improve 
benefits  and  cover  more  costs. 

Mr.  DiNGELL.  Dr.  Adelman,  do  you  have  the  same  feeling? 

Mr.  Adamany.  Unless  you  can  come  up  with  a  better  idea.  But  if 
you  can't  come  up  with  a  better  idea,  we  would  die  without  it. 

Mr.  Ellstein.  If  I  could  put  a  different  cast  on  it,  the  MHA  has 
always  opposed  the  idea  of  asking  providers  to  pay  for  Medicaid.  In 
this  State,  in  this  economy,  the  alternative  is  so  much  worse  that 
we  had  no  choice. 

Mr.  DiNGELL.  I  think  the  whole  idea  is  basically  a  sorry  one,  but 
it  was  done  by  the  States  because  they  had  no  alternative.  And  it 
was  supported  by  the  professions  and  by  the  hospital  people,  simply 

58-688  O  -  92  -  11 



because  there  was  no  accessible  alternative.  It  was  either  that  or  | 
see  the  government  shirk  its  responsibility  for  Medicaid.  I 

Mr.  Upton.  If  I  may  ask  the  gentleman,  I  might  remind  you  as  1 
well  that  it  was  the  Reagan  administration  who  came  up  with  the  ' 
idea  to  get  away  from  raising  taxes.  | 

Mr.  DiNGELL.  It  didn't  take  long  for  them  to  repudiate  it,  but  the  \ 
gentleman  is  correct.  I  am  not  critical  of  the  Reagan  administra-  1 
tion  at  this  particular  point.  I  would  simply  use  this  as  a  prefatory  | 
statement  to  indicate  that  at  the  end  of  this  year,  the  voluntary 
contribution  system  is  going  to  terminate.  And  the  people  sitting 
up  here  did  the  best  they  could  to  get  this  extended  over  the  rather 
vigorous  objections  of  the  administration. 

Can  you  give  me  some  examples  of  the  services  and  benefits  the  i 
contributions  have  helped  bring  about?  What  would  have  been  ter-  I 
minated  had  we  not  had  the  voluntary  program?  I 

Mr.  Ellstein.  I  think  the  first  direct  program  that  was  saved  j 
was  the  Medicaid  program  itself.  There  was  talk  a  year  ago  about  I 
the  State  of  Michigan  terminating  its  Medicaid  program  because  1 
there  just  wasn't  going  to  be  enough  money  to  fund  it  through  the 
end  of  the  fiscal  year.  So  there  was  serious  discussion  about  wheth-  | 
er  we  were  going  to  have  to  terminate  the  Medicaid  program  part 
way  through  the  year.  I 

The  existence  of  the  voluntary  contribution  program  allowed  I 
enough  money  to  come  into  the  program  that  some  hospitals  with  I 
disproportionate  Medicaid  loads  helped  out  with  some  additional  | 
payments.  The  program  was  kept  in  place.  The  State  was  able  to  j 
restore  a  20  percent  reduction  in  physician  payment  rates,  which  | 
was  implemented  last  April  1st.  That  was  restored  partially  j 
through  the  voluntary  contribution  program.  ' 

We  have  been  able  to  increase  physician  and  outpatient  hospital  [ 
payments  by  about  15  percent,  as  of  last  December  1st,  hopefully  to  j| 
encourage  more  physicians  to  treat  Medicaid  patients  and  to  | 
reduce  the  losses  that  hospitals  incur  in  filling  the  gap.  i 

We  were  able  to  avoid  the  elimination  of  several  of  the  optional  ! 
coverages,  and  I  think  that  you  could  also  indicate  that  the  propos-  , 
al  to  restore  adult  dental  coverage  is  probably  this  year  at  least 
partially  due  to  the  existence  of  1  more  year  of  the  voluntary  con- 
tribution program.  j 

There  is  no  doubt  in  my  mind  that  the  Medicaid  population  is 
receiving  significantly  more  service  because  of  the  contribution 
plan  than  they  would  have  otherwise.  I  am  frightened  to  death  of 
what  happens  when  the  plan  ends.  We  are  going  to  be  able  to 
repeat  our  plan  one  more  time  in  the  fall  of  this  year  for  fiscal 
year  1993,  and  after  that,  I  don't  know  what  is  going  to  happen. 
The  conditions  under  which  provider  taxes  are  allowed  will  make  it 
very  difficult  to  put  through  those  kinds  of  taxes,  which  are  really 
taxing  providers  and  people  who  are  getting  health  care  to  pay  for 
Medicaid  rather  than  spreading  the  burden  equitably  among  all 

I  am  very  concerned  about  what  we  are  going  to  do  to  fill  the  | 
gap,  unless  we  see  a  very  significant  improvement  in  the  economy 
far  beyond  anything  that  Michigan  has  ever  experienced  before. 


Mr.  DiNGELL.  I  have  a  curiosity  as  to  what  happens  to  these  pro- 
grams if  this  program  expires.  What  then  transpires?  Do  these  pro- 
grams terminate? 

I  am  sorry,  Dr.  Adamany,  I  should  ask  you  that. 

Mr.  Adamany.  Let  me  just  make  one  comment.  I  think  the  hospi- 
tal association  can  probably  give  you  a  broader  ranging  comment, 
but  to  jump  in  with  one  point  on  the  physicians  side,  the  15  per- 
cent increase  in  the  physician  payment  should  be  looked  at  with  a 
little  bit  of  sophistication,  because  what  actually  happens,  two 
things  at  the  same  time.  One  is,  15  percent  more  money  was  put 
into  the  physician  line  of  payment  as  a  result  of  the  voluntary  pro- 
gram. And  the  Medicaid  program  also  adopted  the  RVRVS. 

The  RVRVS,  as  you  know,  shifts  incentives  by  paying  relatively 
more  for  primary  care  in  order  to  shift  physicians  into  primary 
care  and  paying  relatively  less  for  tertiary  services.  There  was  also 
a  specific  decision  made  to  allocate  a  fixed  amount  of  additional 
money  to  try  to  bring  OB/GYN  payments  up  to  speed. 

Now,  moving  on  to  the  RVRVS  meant  tremendous  allocations  in 
the  previous  payment  in  what  was  previously  paid,  for  Medicaid 
just  as  it  did  for  Medicare.  You  all  know  the  difficulties  that  sur- 
geons are  finding  with  the  RVRVS,  because  the  surgeons  are  the 
losers  and  the  primary  care  people  are  the  winners. 

Going  in  Michigan  to  the  RVRVS,  with  the  amount  of  money 
available  to  pay  physicians,  meant  that  a  decision  had  to  be  made, 
obviously  there  was  no  way  that  they  could  pay  at  the  level  of 
Medicare,  so  the  decision  was  initially  made  to  pay  at  the  level  of 
70  percent  of  Medicare,  but  pay  on  the  RVRVS. 

Now,  when  we  took  our  first  look  at  that,  that  meant  that  we 
were  going  to  in  many  instances  have  lower  payments  for  Medicaid 
after  the  15  percent  increase,  than  we  had  before.  Now,  physicians 
were  being  paid  somewhere  in  the  range  of  the  30  percent  of 
charges  by  Medicaid.  I  was  just  told  by  an  orthopedic  surgeon  that 
they  are  actually  being  paid  between  1  and  30  percent  of  charges. 

Ms.  Adelman.  I  think  for  pediatric  surgeons  it  was  probably  mid- 
30 — about  33,  35  percent  of  charges  or  thereabouts.  Payments  for 
all  of  my  procedures  were  going  to  go  down  with  this  15  percent 
increase.  Now,  we  immediately  saw  that  this  was  going  to  really 
deprive  patients  of  access  to  a  great  deal  of  tertiary  care,  because 
physicians  have  been  on  the  line.  They  have  been  borderline  about 
to  drop  Medicaid.  All  the  physicians  that  have  been  on  Medicaid 
are  simply  there  on  dedication,  not  because  they  make  money.  Phy- 
sicians have  all  said  I  will  hang  on  a  little  longer,  maybe  some- 
thing will  improve,  if  not,  I  will  drop  Medicaid. 

Without  their  15  percent  increase,  which  is  what  would  go  if  you 
lost  the  voluntary  contribution,  there  is  a  real  question  how  the 
tertiary  hospitals,  the  medical  center,  Detroit  Medical  Center,  and 
the  physicians  who  provide  tertiary  care  would  be  able  to  take  care 
of  Medicaid  patients.  Real  serious  question. 

Mr.  DiNGELL.  This  promotes  a  comment  that  probably  you  ought 
to  have  in  mind.  The  program  expires  the  last  day  of  this  year.  The 
election  is  early  in  November.  There  will  be  no  post-election  session 
for  Congress.  I  would  suggest  that  the  crisis  is  postponed  by  the  en- 
actment of  this  legislation  until  after  the  election.  I  would  suggest 
if  the  hospital  association  and  medical  association  want  that  ad- 


dressed,  they  should  trigger  a  crisis  before,  rather  than  after  the  j 
election.  I  leave  that  thought  in  your  mind. 
Mr.  Hiltz?  I 
Mr.  Hiltz.  If  you  live  in  Epsilon  or  Flint,  Michigan,  we  are  in  a  I 
crisis.  I  think  in  Monroe  we  have  a  pretty  good  school  system.  Last  j 
fall,  during  midterms  they  arranged  parent-teacher  conferences,  so 
they  had  all  the  teachers  in  the  gym,  and  they  scheduled  the  ses- 
sions during  the  day  and  at  night.  Less  than  30  percent  of  the  par- 
ents showed  up  to  get  involved  in  the  quality  of  education  for  the  j 

In  this  country,  one  State  stands  out  as  doing  a  pretty  super  job 
with  education  and  in  high  values  for  medical  care  and  quality  of 
life.  It  is  the  State  of  Utah.  The  State  of  Utah  is  dominated  by  a 
church  that  holds  family  to  be  of  critical  importance. 

Can  our  country  continue  to  prosper  and  recover  if  we  don't  get 
some  of  those  values  back?  It  invades  health  care,  it  controls  educa-  | 
tion,  and  that  is  what  we  are  all  about.  We  have  got  to  do  some-  I 
thing.  We  have  to  decide  which  direction  we  are  going  to  go.  Look 
at  Utah.  Why  are  they  so  good?  It  is  because  of  the  values  they  ' 
have.  Healthy  women,  emphasis  on  education,  emphasis  on  family.  , 

Mr.  DiNGELL.  Doctor,  do  you  have  any  further  comments?  I 

Ms.  Adelman.  Primary  comment  is  that  we  in  medicine  are  vi- 
tally interested  in  working  with  you  on  this  problem.  I  don't  think 
we  have  said  everything  we  know  today.  We  do  know  more.  We 
have  a  great  deal  more  written  out.  We  have  a  great  deal  of  elabo- 
ration on  the  material  we  have  prepared.  The  AMA  has  several  | 
councils  and  work  groups  and  would  have  you  working  on  many  I 
areas  that  are  not  flushed  out.  | 

The  cost  containment  area  needs  more  work,  catastrophic  needs  i 
more  work,  long-term  needs  more  work  in  our  proposals.  We  are  ! 
extremely  interested  in  being  supportive  of  your  work  and  working  i 
with  you.  1 

Mr.  DiNGELL.  Thank  you. 

Mr.  Ellstein?  Mr.  Hiltz?  \ 
Mr.  Hiltz.  I  would  echo  Dr.  Adelman.  We  are  all  interested  in  i 

working  with  you. 
Mr.  Ellstein.  Particularly  the  Michigan  members  of  the  commit-  ' 

tee  know  where  to  find  me.  You  found  me  before.  And  I  do  know  I  , 

found  your  offices  as  well.  We  look  forward  to  continuing  the 


I  think  the  one  thing,  having  sat  here  all  day,  the  one  thing  that 
has  been  demonstrated  clearly  is  that  the  system  is  broken.  We 
have  heard  endless  evidence  that  the  system  is  broken.  It  is  time  to 
move  beyond  trying  to  determine  whether  the  system  is  broken.  It 
is  time  to  start  moving  into  the  discussion  of  how  we  are  going  to 
fix  it. 

Mr.  DiNGELL.  Unfortunately  you  are  right. 

Doctor,  Mr.  Hiltz,  Mr.  Ellstein,  the  committee  thanks  you.  The 
Chair  notes  this  completes  our  panels  of  witnesses.  The  Chair 
wants  to  express  my  thanks,  first  to  my  colleagues  for  their  pa- 
tience and  their  diligence  and  attendance.  Second,  to  all  our  wit- 
nesses for  all  their  fine  testimony;  third,  for  the  others  who  have 
participated  and  who  have  sat  with  us  through  the  day  observing 
what  has  been  going  on  here. 


Last  of  all,  I  wanted  to  say  a  word  of  thanks  to  the  staff,  the  staff 
of  the  subcommittee,  the  full  committee,  but  also  the  minority 
staff.  I  want  the  minority  staff  to  know  their  cooperation  in  this 
has  been  noted  by  the  Chair  and  is  very  much  appreciated.  It  is  a 
good  example  of  not  only  the  committee  functioning  but  also  the 
staff  of  the  committee  functioning.  I  think  we  are  well-served  by 
people  of  this  quality.  I  am  particularly  appreciative. 

I  would  recognize  any  of  my  colleagues  for  a  concluding  state- 
ment, if  they  would  like  to  make  one  at  this  time. 

Mr.  CoNYERS.  Thank  you,  Mr.  Chairman.  I  am  privileged  to  be 
able  to  join  you  on  this  very  important  subject.  As  you  know.  Gov- 
ernment Operations,  which  I  Chair,  is  working  on  it,  too,  and  I 
have  John  Gorman  and  Ray  Plowden  from  my  staff  who  have 
worked  very  hard,  too.  I  only  wish  my  ranking  minority  member 
was  here  to  see  how  you  praised  the  minority  and  their  staff  be- 
cause we  have  the  House  Administration  budget  coming  up,  and  if 
we  aren't  in  agreement,  we  may  not  get  any  bucks  for  Government 
Operations.  So  you  set  an  enormously  good  example  for  the  other 
Chairman  to  follow. 

Mr.  DiNGELL.  I  would  answer  that  by  saying  we  have  a  commit- 
tee which  has  strong  views.  The  Democrats  and  Republicans  both 
have  strong  views  which  are  not  always  in  conformity  one  with  the 
other,  and  we  occasionally  have  vigorous  interactions,  but  we  work 
very  hard. 

I  should  make  one  observation.  As  Chair,  I  inquire  of  the  minori- 
ty what  it  is  they  want,  and  I  present  it  in  full  to  the  House  Ad- 
ministration Committee  without  any  change.  That  will  be  my  prac- 
tice. That  will  continue  to  be  my  practice. 

I  wanted  to  thank  Mr.  Schaefer,  who  I  know  comes  from  far 
away  from  us,  and  Mr.  Upton,  who  is  of  this  State.  Both  of  whom 
are  of  enormous  value  to  this  committee. 

Mr.  Schaefer? 

Mr.  Schaefer.  I  thank  you  for  the  opportunity  to  be  here.  I  prob- 
ably learned  more  about  this  situation  than  I  care  to  know.  I  don't 
think  anybody  has  any  answers  yet.  Therefore,  this  was  very  in- 
formative. It  was  well  set  up.  Information  came  from  a  number  of 
different  sources. 

As  I  indicated  last  April,  I  had  the  first  health  conference  in  Col- 
orado we  ever  had,  bringing  in  all  groups,  trying  to  come  up  with 
possible  solutions.  I  thank  you  for  your  leadership  on  this  and  rec- 
ognize we  do  have  a  tremendous  problem  here,  and  as  my  col- 
league, also  from  Michigan  said,  it  is  time  to  blow  this  one  up  and 
start  over  again. 

Thank  you  very  much. 

Mr.  DiNGELL.  Mr.  Upton? 

Mr.  Upton.  I  would  like  to  say  one  brief  thing.  I,  too,  commend 
the  staffs  on  both  sides  of  the  aisle.  It  has  been  very  clear  from  the 
onset,  certainly  since  I  have  been  on  the  committee,  there  is  great 
harmony  between  both  sides.  I  appreciate  the  cordial  hard  work  so 
many  people  put  in. 

The  other  thing  I  would  like  to  say,  I  again  congratulate  you  on 
having  a  very  good  hearing  back  here.  I  have  said  so  many  times, 
the  Congress  may  be  criticized  for  factfinding  missions  in  various 
places  of  the  world,  and  I  appreciate,  certainly,  Mr.  Schaefer's  at- 


tendance — all  day  attendance  here — to  bring  home  the  problems  of 
Michigan  to  the  entire  Congress.  Whether  it  was  the  hearing  today 
or  whether  it  was  your  leadership  last  spring  where  nearly  10  per- 
cent of  the  Congress  came  to  the  Detroit  area  to  study  the  prob- 
lems of  the  automobile  industry,  many  of  them  with  a  health-relat- 
ed focus,  I  think  is  certainly  very  commendable  and  helps  us  get 
the  job  done  right  when  we  go  back  and  begin  to  work  on  legisla- 

I  thank  you  again. 

Mr.  DiNGELL.  The  Chair  thanks  the  ge^itleman. 
The  committee  will  stand  adjourned  until  the  call  of  the  Chair. 
[Whereupon,  at  4:25  p.m.,  the  hearing  was  adjourned,  to  recon- 
vene at  the  call  of  the  Chair.] 


THURSDAY,  MARCH  26,  1992 

House  of  Representatives, 
Committee  on  Energy  and  Commerce, 
Subcommittee  on  Oversight  and  Investigations, 

Washington,  DC. 

The  subcommittee  met,  pursuant  to  notice,  at  10:03  a.m.,  in  room 
2322,  Rayburn  House  Office  Building,  Hon.  John  D.  Dingell  (chair- 
man) presiding. 

Mr.  Dingell.  The  subcommittee  will  come  to  order. 

The  Chair  has  a  lengthy  opening  statement  which  will  not  be 
read  in  view  of  the  time  constraints.  This  is  what  I  view  as  a  very 
important  hearing  today,  looking  into  the  overall  question  of  how 
our  health  care  system  works,  with  very  specific  emphasis  on  Med- 
icaid and  how  it  is  working  in  the  midst  of  a  huge  increase  in 
health  care  costs,  how  much  of  the  health  care  costs  this  program 
is  meeting,  how  well  the  American  people  are  going  to  be  served, 
and  whether  the  system  is  going  to  provide  the  needs  and  the  ne- 
cessities of  this  country  in  the  area  of  health  care  as  we  move  into 
the  first  decade  of  the  21st  century. 

The  Chair  wants  to  just  say  that  I  am  particularly  pleased  to 
have  an  old  friend  before  the  committee  today.  I  will  conclude  my 
remarks  after  I  have  recognized  Mr.  Bilirakis  for  the  purposes  of 
introducing  our  first  witness  and  I  know  he  will  do  so  with  the 
same  enthusiasm  and  warmth  and  good  feeling  that  I  feel  towards 
the  Governor. 

[The  opening  statement  of  Chairman  Dingell  follows:] 

Opening  Statement  of  Hon.  John  D.  Dingell 

Over  the  course  of  the  last  year,  the  subcommittee  has  been  conducting  investiga- 
tions into  how  our  health  care  system  works,  who  benefits  from  it  and  who  loses, 
and  why  it  is  pushing  us  to  the  financial  brink  while  our  public  health  deteriorates 
and  many  more  are  going  without  health  care.  We  repeatedly  have  heard  the  con- 
sistent message  from  physicians,  hospital  administrators,  public  health  experts,  pa- 
tients and  government  officials  that  we  have  a  system  in  crisis.  The  subcommittee 
has  focused  much  of  its  attention  on  the  Medicaid  program  because  it  was  created  to 
help  our  most  vulnerable  people — the  poor,  disabled  and  the  elderly.  And  we  fo- 
cused on  it  because  it  appears  to  be  at  the  most  immediate  risk  of  breaking  apart 
and  taking  countless  people  and  States  down  with  it. 

Unfortunately,  we  have  also  found  that  Medicaid's  problems  mirror  those  of  our 
entire  health  care  delivery  system.  Those  problems  reflect  the  unchecked  growth  of 
a  $700  billion  plus  medical-industrial  complex  that  is  crippling  our  economy  and 
shortchanging  our  citizens.  It  is  truly  shocking  that  nearly  40,000  of  our  children  die 
each  year — and  that  they  are  dying  in  a  country  that  leads  the  world  in  medical 
technology  and  scientific  research.  While  infant  mortality  is  only  one  indication  of 
the  success  of  a  health  care  system,  it  is  a  particularly  sad  testament  of  a  system's 



Each  morning,  our  televisions,  newspapers  and  radios  greet  us  with  bleak  news — 
nearly  20  percent  of  our  children  are  living  in  poverty,  48  million  Americans  are 
going  without  health  insurance,  AIDS  cases  are  projected  to  triple  in  the  District  of 
Columbia  by  1996,  and  cases  of  dangerous,  drug-resistant  strains  of  tuberculosis  are 
spreading  across  the  country.  Yet,  we  still  cannot  reach  consensus  on  a  coherent 
health  care  policy.  We  cannot  afford  to  allow  partisan  politics  and  parochial  inter- 
ests to  dictate  what  we  do  on  this  issue  of  critical  importance  to  all  Americans. 

Today,  we  are  fortunate  to  have  with  us  Governor  Lawton  Chiles  of  the  State  of 
Florida.  The  Governor  has  long  been  in  the  forefront,  both  in  his  years  in  the  U.S. 
Senate  and  in  the  State  Capitol,  trying  to  develop  public  health  policies  to  help  all 
of  our  citizens.  I  am  particularly  pleased  to  have  him  with  us  because  Governor 
Chiles  recently  has  succeeded  in  getting  bipartisan  support  for  major  health  care 
reform  initiatives  in  his  State.  While  the  Governor  has  modestly  suggested  that 
Florida  simply  did  not  have  the  luxury  of  waiting  any  longer,  his  State  is  still 
unique  in  its  courage  in  confronting  these  difficult  problems.  Let  me  take  a  moment 
to  outline  a  few  of  the  factors  that  the  Florida  legislators  and  the  Governor  faced: 

— Florida  has  the  highest  percentage  of  elderly  people,  with  their  corresponding 
health  needs,  of  any  State  in  the  country; 

— The  State  has  2  million  citizens  living  below  the  poverty  line; 

— Nearly  23  percent  of  Florida's  non-elderly  people  do  not  have  insurance,  with  a 
full  75  percent  of  those  being  workers  and  their  dependents; 

— Ninety-five  percent  of  Florida's  businesses  employ  fewer  than  25  people; 

— Florida  has  the  second  highest  unemployment  rate  in  the  Nation;  and,  finally, 

— Health  insurance  premiums  increased  234  percent  from  1980  to  1990. 

We  look  forward  to  Governor  Chiles'  testimony  and  particularly  appreciate  his 
being  with  us  today. 

We  are  fortunate  to  have  with  us,  as  well,  Ms.  Rae  Grad,  the  Executive  Director 
of  the  National  Commission  to  Prevent  Infant  Mortality.  This  Commission  has  made 
invaluable  contributions  over  the  years  to  the  fight  to  save  our  most  vulnerable  citi- 

Ms.  Grad  will  give  us  the  alarming  results  of  the  Commission's  newest  analysis  of 
trends  in  infant  mortality  and  low  birthweight  babies.  Her  work  and  that  of  the 
Commission  is  essential  to  our  understanding  why  the  system  is  breaking  down  and 
what  can  and  must  be  done  to  fix  it. 

I  also  want  to  commend  my  good  friend  and  colleague  from  Georgia,  Dr.  Rowland, 
for  his  work  on  these  important  matters.  Dr.  Rowland  is  Vice  Chairman  of  the  Com- 
mission and  he  also  sits  on  the  President's  Commission  on  AIDS.  His  insight  on 
these  crucial  issues  will  be  invaluable  in  our  hearing  today  and  as  we  move  forward 
with  our  work. 

Finally,  today  we  will  hear  from  Mr.  Michael  Mangano,  the  Deputy  Inspector 
General  for  the  Department  of  Health  and  Human  Services.  Following  the  subcom- 
mittee's first  hearing  in  June  of  last  year,  the  Inspector  General  was  requested  to 
conduct  additional  investigations  for  the  subcommittee.  That  work  has  been  com- 
pleted and  Mr.  Mangano  will  report  to  the  subcommittee  on  those  findings.  Specifi- 
cally, the  Inspector  General  evaluated  the  economic  and  public  health  consequences 
of  patients  going  to  emergency  rooms  across  the  country  for  primary  health  care. 
He  also  reviewed  how  managed  care  affected  both  the  quality  of  care  and  cost  of 
health  care  for  Medicaid  patients.  And  finally,  the  Inspector  General  assessed  the 
extent  and  nature  of  the  "hassle  factor" — the  paperwork  and  logistical  nightmare 
that  many  physicians  claim  is  one  of  the  primary  reasons  they  will  not  take  Medic- 
aid patients. 

We  are  pleased  to  have  all  of  you  with  us  today.  I  believe  that  the  record  that  you 
are  helping  the  subcommittee  build  will  be  of  critical  importance  in  our  efforts  to 
respond  to  the  health  care  crisis. 


Mr.  BiLiRAKis.  Thank  you,  Mr.  Chairman,  and  good  morning. 

As  a  former  member  of  this  subcommittee,  Mr.  Chairman,  and  I 
do  miss  working  with  this  subcommittee  I  might  add,  as  a  Floridi- 
an  and  as  a  Gator  I  truly  appreciate  the  opportunity  to  introduce 
to  you  the  Governor  of  the  Sunshine  State,  Governor  Lawton 


Governor  Chiles  has  served  the  people  of  Florida  for  33  years. 
After  serving  in  the  State  House  and  Senate,  he  was  elected  to  the 
U.S.  Senate  in  1970.  He  became  the  first  Floridian  to  chair  a  major 
Senate  committee,  the  Budget  Committee,  and  for  years  fought  for 
budgetary  discipline,  but  Lawton's  determination  to  rein  in  Federal 
spending,  Mr.  Chairman,  did  not  restrict  his  vision.  He  recognized 
years  ago  that  too  many  children  in  the  United  States  did  not  live 
to  celebrate  their  first  birthdays  and  that  even  more  tragic,  most 
infant  deaths  were  preventable. 

Governor  Chiles  was  instrumental  in  founding  the  National  Com- 
mission to  prevent  infant  mortality  and  has  served  as  its  chairman 
ever  since.  Mr.  Chairman,  as  we  might  imagine,  few  individuals 
who  will  ever  testify  before  this  subcommittee  can  speak  with  the 
authority  on  the  subject  of  infant  mortality  as  our  Governor, 
Lawton  Chiles. 

I  support  the  Medicaid  program.  I  know  that  we  all  do  and  we  all 
want  to  preserve  it.  However,  Federal  regulations  and  mandates 
placed  on  the  Medicaid  program  by  Congress  have  created  serious 
difficulties  for  most  States,  Mr.  Chairman,  and  I  know  we  are  going 
to  hear  more  about  that  here  this  morning.  I  honestly  do  not  be- 
lieve it  is  the  intent  of  Congress  to  put  States  in  this  position.  How- 
ever, that  has  been  the  outcome  in  many  States. 

Getting  back  to  the  subject  of  infant  mortality,  Mr.  Chairman, 
the  Governor  and  I  share  the  dismal  infant  mortality  rates  of  our 
Nation  especially  in  the  southern  region.  Since  1989  I  have  served 
as  the  co-chairman  of  the  Congressional  Sun  Belt  Caucus  Task 
Force  on  Infant  Mortality  with  my  good  friend  Roy  Rowland,  who 
has  just  come  in. 

The  Task  Force  is  quite  active  because  we  are  deeply  concerned. 
The  Sun  Belt  region  has  the  highest  infant  mortality  rate,  I  am 
ashamed  to  say,  of  any  area  of  the  country.  In  my  Congressional 
district  the  news  is  more  encouraging,  as  the  Governor  knows. 
There  has  been  a  noticeable  reduction  in  infant  mortality  rates  for 
Pasco  County,  for  instance,  since  the  mid-1980's.  Nutrition  pro- 
grams which  most  of  us  strongly  support  can  make  a  significant 
difference  in  the  lives  of  so  many. 

I  am  proud  to  say  the  Pasco  County  program  goes  that  extra 
mile  and  while  providing  nutritional  services,  the  staff  takes  a  per- 
sonal interest  in  every  client.  I  have  visited  those  facilities,  some  of 
those  facilities.  Governor,  and  I  have  seen  actually  the  personal  in- 
terest that  they  take.  It's  just  a  wonderful  thing  to  see. 

Providing  pregnant  women  with  adequate  prenatal  care  is  an- 
other proven  method  which  lowers  infant  mortality  statistics.  Un- 
fortunately, skyrocketing  medical  malpractice  insurance  premiums 
have  led  many  obstetric  providers  to  refuse  to  accept  Medicaid  re- 
cipients as  patients  or  refuse  to  accept  new  patients  altogether. 

Last  year  I  introduced  the  Access  to  Obstetric  Care  Act  of  1991 
in  an  effort  to  encourage  more  health  care  professionals  to  provide 
services  to  all  pregnant  women.  This  bill  would  allocate  funds  for 
Medicaid  demonstration  projects  at  the  State  level  to  enable  States 
to  design  initiatives  tailored  to  meet  the  exact  needs  of  their  resi- 


Mr.  Chairman,  there  are  many  other  aspects  of  the  Medicaid  pro- 
gram which  I  am  deeply  interested  in,  particularly  preventative 
health  care  for  all  ages,  and  also  long-term  care. 

Health  care  reform  is  necessary  in  this  country  and  all  of  us 
have  different  ideas  on  how  to  resolve  this  very  serious  matter  and 
I  guess  that  is  part  of  the  problem — ^we  all  have  different  ideas. 

The  Governor  and  I  both  believe  that  every  American  has  the 
right  to  health  care  access.  I  am  certain  the  Governor  will  be  able 
to  provide  this  subcommittee  with  valuable  insights  on  the  Medic- 
aid program,  on  infant  mortality  and  health  care  access  issues. 

I  am  pleased,  Mr.  Chairman,  to  introduce  to  the  committee  our 
Governor,  Lawton  Chiles,  and  am  further  pleased  to  see  your  inter- 
est and  the  committee's  interest  in  the  Medicaid  program  and 
would  be  more  than  willing  to  work  with  you  on  these  very  impor- 
tant issues. 

I  am  pleased  to  introduce  to  the  committee  Governor  Lawton 

Mr.  DiNGELL.  Governor,  before  we  recognize  you,  our  good  friend 
Mr.  Rowland  is  here  and  I  know  he  would  like  to  have  something 
to  say  at  this  particular  time. 

Mr.  Rowland.  Well,  what  a  pleasure  to  see  you.  Governor  Chiles. 
I  am  really  pleased  that  you  are  here.  I  don't  believe  there  is 
anyone  in  this  country  that  would  be  more  familiar  with  the  prob- 
lems that  confront  us  today  in  the  Medicaid  programs  and  in  teen- 
age pregnancy  than  you.  You  have  been  here  at  the  Federal  level. 
You  are  at  the  State  level  now  and  I  believe  that  your  understand- 
ing of  the  problem  will  shed  a  great  deal  of  light  on  what  we  need 
to  do. 

It  is  certainly  a  conundrum  to  know  how  to  deal  with  this  prob- 
lem with  the  increasing  number  of  teenage  and  adolescent  preg- 
nancies that  we  have.  We  continue  to  have  one  of  the  poorest 
infant  mortality  rates  in  the  world  and  the  fact  is  that  my  own 
State  of  Georgia  is  the  worst  State  in  this  country  with  reference  to 
infant  mortality,  40  percent  of  the  deliveries  in  my  State  of  Geor- 
gia is  in  the  Medicaid  program.  I  have  not  voted  for  any  expansion 
or  supported  any  expansion  of  Medicaid  without  talking  to  the 
people  back  in  my  home  State  about  this. 

We  have  a  propensity  here  in  Congress  to  put  burdens  on  the 
States  or  create  or  expand  programs  that  in  many  instances  just 
don't  work.  They  don't  do  what  they  are  intended  to  do.  I  am  so 
pleased  to  see  you  here  today,  and  I  look  forward  with  great  antici- 
pation to  what  you  have  to  say. 

Thank  you. 

Thank  you,  Mr.  Chairman. 

Mr.  DiNGELL.  I  just  want  to  add  to  you.  Governor,  that  as  a  per- 
sonal friend  of  yours  and  as  an  admirer  of  yours  for  a  long  time,  as 
one  who  served  with  you  while  you  served  your  State  with  distinc- 
tion in  the  Senate  and  one  who  has  worked  with  you  and  under 
your  leadership  on  the  problems  of  health  and  young  people  and 
infants,  and  recalling  all  of  the  wonderful  things  that  you  have 
done,  I  want  to  tell  you  that  it  is  a  particular  honor  and  a  pleasure 
for  this  committee  to  have  you  before  us  to  testify. 


There  are  a  couple  of  minor  things.  We  have  precedents  in  this 
place,  as  you  very  well  know.  The  first  is  that  we  receive  all  testi- 
mony under  oath. 

Would  you  have  any  objection  to  being  sworn? 

Governor  Chiles.  No,  sir. 

[Witness  sworn.] 

Mr.  DiNGELL.  Governor,  welcome  to  you.  You  may  proceed  in  any 
fashion  you  choose. 



Governor  Chiles.  Thank  you,  Chairman  Dingell,  and  to  my  good 
friend  Representative  Roy  Rowland,  who  co-chairs  the  Infant  Mor- 
tality Commission  with  me.  I  am  delighted  to  have  a  chance  to  be 
here  and  today  especially  as  we  make  an  infant  mortality  report, 
which  Rae  Grad  will  make,  and  to  my  good  friend.  Congressman 
Mike  Bilirakis,  I  thank  you  for  those  kind  words. 

Governor  Waihee  could  not  be  here  today  but  he  asked  me  to 
submit  his  testimony  for  the  record  and  I  would  like  to  do  that. 

Mr.  Dingell.  Without  objection,  that  will  be  inserted  at  the  ap- 
propriate place.  [See  p.  457.] 

Governor  Chiles.  Hawaii's  pre-paid  health  plan,  health  care  act, 
is  a  comprehensive  full-access  program  that  sets  the  standard  for 
all  States  and  so  I  submit  that. 

Mr.  Chairman,  before  I  begin  my  testimony,  knowing  of  your  in- 
terest in  protecting  against  certain  predators,  I  wanted  to  report  to 
you  that  last  Sunday  morning  I  had  an  opportunity  to  be  in  the 
area  of  a  marauder.  I  thought  I  had  picked  my  position  well.  Fol- 
lowing the  example  of  Southern  military  tradition,  I  had  tried  to 
pick  my  ground.  I  had  camouflaged  my  position.  I  thought  I  had 
defended  it  adequately  but  this  particular  marauder  without  saying 
a  word  slipped  in  behind  me,  almost  assaulted  me.  Fortunately, 
right  won  out  and  I  was  able  to  dispatch  this  predator.  I  just 
wanted  to  let  you  know  you  are  one  behind  unless  you  have  started 

Mr.  Dingell.  I  am  delighted  to  know  that  you  were  able  to 
defend  yourself. 

Governor  Chiles.  Yes,  sir.  Having  shared  you  all's  responsibil- 
ities and  your  point  of  view  for  awhile,  maybe  I  feel  a  little  like 
Paul  after  having  persecuted  Christians  for  awhile.  He  felt  the 
Lord  had  given  him  a  particular  load  to  carry  and  I  have  the  op- 
portunity to  do  that  in  my  second  chance  now  in  my  trying  to  serve 
13  million  Floridians  but  2.5  million  of  those  have  no  access  to  af- 
fordable health  care.  These  are  mainly  working  folks.  They  are  not 
permanently  in  this  status.  In  fact,  and  that  is  the  heck  of  it  be- 
cause but  for  a  marginal  change  in  circumstances  any  one  of  us 
could  sort  of  be  where  a  number  of  them  are,  and  I  would  like  to 
share  with  you  just  a  few  of  their  stories. 

The  Wauchula  family  was  forced  to  sell  their  farm  and  all  their 
belongings  to  pay  for  the  medical  care  of  their  10-year-old  daugh- 
ter. A  40-year-old  Miami  motel  maid  was  denied  surgery  at  a  public 
hospital  because  she  could  not  afford  the  $200  deposit.  She  made 


too  much  money  to  qualify  for  Medicaid,  too  little  to  buy  insurance, 
and  her  job  did  not  offer  an  insurance  plan. 

We  have  a  case  of  a  14-year-old  Palmetto  girl,  committed  suicide  ' 
after  being  discharged  from  a  crisis  center.  Her  working  parents  I 
were  ineligible  for  Medicaid  but  had  no  health  insurance  and  could 
not  afford  the  private  hospitalization  that  she  needed. 

An  Indialantic  family  is  on  the  verge  of  bankruptcy  with 
$200,000  in  hospital  bills  for  their  15-year-old  daughter  who  has 
cystic  fibrosis.  The  family's  insurance  company  stopped  writing 
medical  policies  in  Florida,  leaving  them  uncovered. 

It  was  these  stories  and  thousands  more  that  moved  us  to  pass 
the  Florida  Health  Plan,  which  calls  for  full  access  to  affordable 
care  to  all  Floridians  by  December  of  1994. 

Our  plan  ensures  that  every  Floridian  will  have  a  family  doctor 
with  emphasis  on  a  managed  care  delivery  system.  We  pool  the  j 
health  care  purchasing  power  of  the  State  and  local  governments,  i 
We  establish  community-based  health  care  promotion  and  wellness  | 
programs.  We  establish  the  Florida  health  services  corps.  We  pro-  ; 
vide  scholarship  and  loan  repayment  assistance  to  help  profession- 
als who  serve  in  rural  and  medically-underserved  areas.  We  prohib-  j 
it  the  denial  or  non-renewable  of  small  employer  plans  because  of  I 
health  status,  claims  experience,  occupation  or  geographic  location. 
We  limit  the  premium  rate  increases  among  classes  of  employees 
and  we  impose  a  12-month  limitation  on  the  exclusion  of  pre-exist- 
ing conditions.  i 

Mr.  Chairman,  I  am  a  great  believer  in  the  free  market  and  in 
incentives  over  mandates,  but  if  I  am  to  provide  those  incentives  I 
need  your  help  and  additional  flexibility. 

Therefore,  I  am  meeting  with  Members  of  Congress  and  the  ad-  j 
ministration  today  to  try  to  ask  for  the  following  Federal  waivers:  i 

We  propose  a  Medicaid  buy-in  program  that  would  allow  Florid-  | 
ians  who  don't  qualify  for  Medicaid  under  the  current  rules  to  have 
access  to  a  program  that  uses  Medicaid  funds.  To  do  this  we  need  ' 
to  remove  the  restrictions  that  tie  Medicaid  to  other  Federal  aid 
programs  like  SSI  or  AFDC.  We  need  to  separate  health  care  from 

Mr.  Rowland,  Congressman  Rowland,  you  pointed  out  what  hap- 
pens when  States,  many  of  whom  are  some  of  our  Southern  States, 
and  it's  hard  when  you  give  these  mandates  that  we  have  to  do  ev- 
erything. Then  we  can't  afford  the  coverage.  We  know  what  hap- 
pened to  States  when  you  gave  us  the  ability,  and  I  helped  do  it 
when  I  was  up  here,  to  get  into  the  prenatal  business  without 
having  to  cover  all  of  the  other  things.  States  opted  and  I  think 
most  have  done  it  and  it's  certainly  helped  us  tremendously  in 
Florida.  We  are  looking  for  this  kind  of  a  buy-in  program  to  cover 
this  2.5  million  uninsured  people. 

Another  area  we  want  to  experiment  is  Medicare.  I  can't  think  of 
any  good  reason  why  the  States  are  given  the  authority  to  adminis- 
ter the  Medicaid  program,  yet  the  Federal  Government  insists  on 
managing  Medicare.  We  want  you  to  authorize  Federal  demonstra- 
tion projects  using  alternative  payment  mechanisms  including 
single  payer  systems.  We  want  the  authority  to  use  Medicare  fund- 
ing for  managed  care  programs.  It  will  cut  the  overall  cost.  Again, 


if  we  can  share  in  the  savings,  we  can  enhance  these  programs  and 
reach  more  people  with  better  services. 

We  also  want  to  amend  the  Employment  Retirement  Income  Se- 
curity Act,  ERISA.  This  act  prohibits  the  States  from  regulating 
self-funded  insurers.  Understandably,  there  are  many  groups  in- 
cluding labor  and  business  who  want  to  avoid  having  to  negotiate 
different  insurance  benefits  in  every  State.  Again,  we  think  there 
is  room  for  a  compromise  that  will  allow  Florida  to  mandate  cer- 
tain benefits  and  experiment  with  the  single  payer. 

The  leverage  of  a  pay-or-play  plan  would  give  us  the  pressure  to 
get  the  voluntary  compliance  that  we  feel  that  we  need  and  if  we 
cannot  get  some  kind  of  leverage  off  of  getting  the  ERISA  waivers, 
our  goal  towards  trying  to  get  there  on  a  voluntary  basis  just  isn't 
going  to  happen  because  this  gives  us  the  hammer.  Congress  and 
you,  Mr.  Chairman,  have  talked  about  pay-or-play.  The  ability  of  us 
to  have  the  hammer  by  having  the  ERISA  waivers,  is  tremendously 
important,  we  think,  to  us  being  able  to  follow  through. 

Finally,  there  are  several  other  administrative  efficiencies  that 
can  be  achieved  that  would  greatly  enhance  our  ability  to  better 
serve  Floridians  and  save  both  Federal  Government  and  our  State 
dollars.  Those  initiatives  include  the  elimination  of  waiver  require- 
ments for  home  and  community  based  services  for  the  developmen- 
tally  disabled  and  elderly  people  of  Florida,  expanding  managed 
care  programs  as  well  as  the  development  of  a  system  of  account- 
ability that  avoids  the  nit-picking  that  results  from  audit  and  docu- 
mentation requirements  that  are  a  hindrance  to  effective  govern- 

Mr.  Chairman,  in  a  nutshell,  we  have  got  many  areas  in  which 
waivers  have  been  granted  not  only  to  Florida  but  a  number  of 
States,  and  yet  every  2  or  3  years  we  have  to  go  through  the  same 
process.  It  is  very  expensive,  very  time  consuming  to  try  to  get  the 
same  waiver  that  we  have  already  been  given  that  we  know  works 
and  that  just  does  not  make  sense. 

Just  to  give  you  an  example,  it  took  us  28  months  to  get  a  waiver 
to  be  able  to  treat  AIDS  patients  at  home  under  and  using  some  of 
the  Federal  funds  as  opposed  to  keeping  them  in  a  hospital  setting 
where  it  costs  the  Federal  Government  and  the  State  government 
much  more  money,  28  months. 

Mr.  DiNGELL.  Governor,  I  don't  often  do  this,  but  I  think  your 
comment  here  is  important  enough  that  it  ought  to  be  addressed 

Your  assistance  in  framing  the  particular  complaints  that  you 
and  the  State  of  Florida  have  had  with  this  waiver  process  would 
be  immensely  useful. 

Governor  Chiles.  Fine. 

Mr.  DiNGELL.  This  is  a  matter  of  special  concern  to  this  subcom- 
mittee and  we  are  going  to  be  having  the  Secretary  before  us  short- 
ly. We  are  in  the  process  of  writing  budget  legislation  and  dealing 
with  questions  of  that  sort  which  would  enable  us,  as  you  would 
know  in  your  experience,  to  proceed  to  write  certain  changes  into 
either  the  administration's  or  into  the  statutory  body  of  law.  Your 
assistance  in  this  particular  arena  would  be  of  great  help  to  us.  So 
if  you  could  get  your  State  officers  who  deal  with  this  matter  to 


give  us  your  specific  set  of  concerns  and  complaints,  it  would 
enable  us  to  better  serve  you  and  other  States. 

Governor  Chiles.  Mr.  Chairman,  we  will  have  that  to  you  imme- 

Mr.  DiNGELL.  Thank  you.  Governor. 

Governor  Chiles.  We  can  do  that,  yes,  sir. 

Expanding  managed  care  programs  as  well  as  the  development  of  | 
the  system  of  accountability — I  already  covered  that.  ' 

Our  Constitution  guarantees  all  of  us  the  right  of  free  speech  and 
every  State  provides  its  citizens  with  the  right  to  public  education. 
With  your  help,  the  fourth  largest  State  in  the  country  is  willing  to 
try  to  extend  the  right  of  affordable  health  care  to  all  of  its  citi-  i 
zens.  We  can  be  your  laboratory.  | 

Our  people  have  spoken.  They  want  Government  to  ensure  ' 
health  care  for  all.  There  is  neither  an  easy  solution  nor  single  so-  1 
lution  and  many  difficult  steps  must  be  taken  to  recast  our  health  i 
care  system  into  one  that  is  effective,  economical  and  available  to  ' 
all.  i 

Our  job,  mine  and  yours,  is  to  aggressively  tackle  the  remaining  : 
problems  and  find  the  path  t6  true  health  care  reform.  Further  j 
delay  is  the  one  thing  that's  no  longer  acceptable  to  our  people.  I  j 
am  convinced  that  the  solution  lies  in  granting  the  States  the  addi-  | 
tional  flexibility  that  they  need  to  test  their  innovative  health  { 
reform  programs.  | 

[Testimony  resumes  on  p.  384.]  I 

[The  prepared  statement  of  Mr.  Chiles  follows:] 



The  Honorable  Lawton  Chiles 

Governor  of  the  State  of  Florida 

Presented  Before  the 

Subcommittee  on 
Oversight  and  Investigations 

Committee  on  Energy  and  Commerce 

U.S.  House  of  Representatives 

March  26, 1992 

Chairman  Dingell,  Representative  Bliley,  and  members  of  the  Subcom- 

Thank  you  for  inviting  me  here  today.  Governor  Waihee  could  not  be  here 
today,  but  he  asked  me  to  submit  his  testimony  for  the  record.  Hawaii's 
Prepaid  Health  Care  Act  is  a  comprehensive,  full  access  program  that  sets  a 
standard  for  all  states. 

I  always  welcome  the  chance  to  meet  with  my  former  colleagues  of  many 
years,  although  I  must  say  that  serving  as  governor  of  the  fourth  largest  state 
has  changed  some  of  my  perceptions  of  governing.  I  appreciate  this  oppor- 
tunity to  testify  on  what  may  be  the  most  critical  long-term  issue  facing 
Americans  today.  This  time,  however,  I  am  on  the  other  side  of  the  table  seek- 
ing the  Congressional  action  I  need  to  fully  implement  Florida's  Health  Care 


Reform  Act  of  1992,  legislation  that  contains  my  comprehensive  health  care 
reform  plan.  On  Ibesday,  I  signed  the  bill  into  law. 

I  am  also  here  today  to  testify  on  behalf  of  some  of  Florida's  two  asd 
one-half  million  uninsured  people  who  do  not  often  get  the  opportunity  to  tell 
their  stories.  But  they  are  stories  that  must  be  told. 

•  A  Wauchula  family  was  forced  to  sell  their  farm  and  all  their  belongings  to 
pay  for  medical  care  for  their  10-year-old  daughter. 

•  A  40-year-old  Miami  motel  maid  was  denied  surgery  at  a  public  hospital 
because  she  could  not  afford  a  $200  deposit.  She  made  too  much  money  to 
qualify  for  Medicaid,  too  little  to  buy  insurance,  and  her  job  did  not  offer  an 
insurance  plan. 

•  A  14-year-old  Palmetto  girl  committed  suicide  after  being  discharged  from  a 
crisis  center.  Her  working  parents,  ineligible  for  Medicaid,  had  no  health 
insurance  and  could  not  afford  the  private  hospitalization  she  needed. 

•  An  Indialantic  family  is  on  the  verge  of  bankruptcy  with  $200,000  in  hospital 
bills  for  their  15-year-old  daughter  who  has  cystic  fibrosis.  The  famUy's 
insurance  company  stopped  writing  medical  policies  in  Florida,  leaving  them 



•  A  St  Petersburg  couple's  chronically  ill  3-year-old  daughter  lost  federal 
disability  benefits  and  state  Medicaid  assistance  in  the  months  when  her 
father  received  five  weekly  paychecks.  His  employer-sponsored  family  policy 
expired  after  his  daughter  received  only  18  months  of  care. 

•  A  Safety  Harbor  mother  was  left  with  $15,000  in  medical  bills  after  the  birth 
of  her  baby  because  her  employer's  self-funded  insurance  plan  ran  out  of 
money,  even  though  she  had  paid  over  $1,000  in  premiums  during  her 
maternity  leave. 

•  A  61-year-oId  Boca  Raton  woman  must  pay  $5,000  per  year  to  Florida's 
high-risk  pool  for  insurance  with  a  $5,000  deductible.  Hospitalized  for 
months  after  a  car  crash  8  years  ago,  she  is  now  considered  a  bad  risk  by 
insurance  companies,  even  though  she  is  in  good  health  and  has  a  healthy 

These  snapshots  from  the  front  lines  of  our  health  insurance  crisis 
bring  the  problem  into  focus.  Florida's  uninsured  are  the  employees  of  small 
and  medium-sized  businesses  that  either  choose  not  to  offer  coverage,  or  can- 
not afford  to  do  so  because  of  health  insurers'  underwriting  practices.  They 
are  people  with  low-incomes  who  do  not  work  but  are  ineligible  for  Medicaid. 
They  are  disabled  persons  who  can  no  longer  work  or  who  have  their  in- 



surance  cancelled  by  carriers  who  deem  them  unacceptable  risks.  IVagically, 
far  too  many  are  our  children  who  are  denied  a  healthy  start  in  life  because 
their  parents  cannot  afford  health  care. 

The  effects  of  decades  of  steadily  rising  health  care  costs  can  no  longer 
be  ignored.  More  and  more  of  our  citizens  are  finding  their  basic  access  to 
health  services  severely  limited  by  their  inability  to  purchase  affordable  in- 
surance. They  are  forced  to  delay  seeking  care  until  they  have  no  choice  other 
than  a  sudden  visit  to  an  overcrowded  hospital  emergency  room.  More  and 
more  Floridians  feel  they  have  nowhere  to  turn  when  they  need  medical  atten- 

But  this  is  not  simply  a  problem  for  consumers.  No  one  who  finances  or 
delivers  health  care  is  exempt  from  the  effects  of  the  crisis: 

•  For  government,  commitments  to  fund  increasingly  expensive  health  care 
programs  leave  less  revenue  to  fund  other  critical  needs,  such  as  education, 
the  environment,  and  criminal  justice. 

e  For  business,  rising  health  care  costs  contribute  to  a  decreased  ability  to 
compete  in  the  global  marketplace,  as  prices  are  continually  boosted  to  cover 
higher  employee  benefit  costs.  With  such  a  large  portion  of  revenues  being 



diverted  to  health  benefits,  less  capital  is  available  for  research  and  develop- 
ment or  long-term  investment. 

•  For  hospitals  and  other  providers,  growing  numbers  of  uninsured  patients 
lead  to  increased  cost-shifting,  which  helps  decrease  the  effect  of  bad  debt, 
but  inflates  the  bills  of  those  patients  who  can  pay. 

There  are  many  national  health  care  reform  proposals,  ranging  from  in- 
cremental reforms  to  employer  mandates  and  universal  health  care 
programs.  As  a  poll  of  New  Hampshire  presidential  primary  voters  recently 
documented,  the  public,  although  dissatisfied  with  the  current  health  care  sys- 
tem, has  not  endorsed  any  of  the  national  plans  being  proposed  (Kaiser 
Family  Foundation,  1992).  Although  I  would  prefer  a  national  solution  to  the 
health  care  problem,  the  federal  government  should  encourage  states  to  test 
alternative  designs  before  it  decides  which  system  is  best  for  the  entire 
country  and  enacts  major  social  legislation  that  will  affect  the  lives  of  all 
Americans  (Wolfson,  1988). 

Before  I  turn  to  the  statutory  and  regulatory  reforms  Florida  needs  to 
fully  implement  its  health  plan,  I  would  like  to  take  a  few  moments  to  sum- 
marize our  health  problems  and  my  response  to  the  state's  crisis. 



Florida's  Health  Care  Problems 
Unique  population  characteristics  make  Florida  an  ideal  site  to  test 
health  care  reform.  Our  state  has  the  highest  percentage  of  elders  in  the  na- 
tion with  18.4  percent  of  the  population  aged  65  and  older.  It  has  the  third 
largest  black  population  and  the  third  highest  percentage  of  migrants  and 
refugees.  Approximately  12  percent  of  the  state's  population  is  of  Hispanic 
origin  (U.S.  Department  of  Commerce,  1991a).  Besides  this  diverse  popula- 
tion, Florida  also  has  almost  2  million  residents  who  live  in  poverty  (U.S. 
Department  of  Commerce,  1991b).  This  is  significant  because  studies  show 
that  people  with  low  incomes  are  more  likely  to  report  their  health  as  poor  or 
fair  than  those  with  higher  incomes. 


The  nation's  health  care  problems  are  magnified  in  Florida.  Most 
Floridians  have  insurance,  but  two  and  one-half  million  residents,  18.5  per- 
cent of  the  population,  are  uninsured;  75  percent  are  workers  and  their 
dependents,  and  almost  one-third  are  children  (Florida  Task  Force  on  Private 
Sector  Health  Care  Responsibility,  1991).  Florida  has  the  nation's  third 
highest  percentage  of  non-elderly  uninsured  residentS"22.9  percent  (EBRI, 
1992).  Its  percentage  of  non-elderly  uninsured  is  also  higher  than  the  18.7 
average  of  other  Deep  South  states.  Florida  data  from  national  studies  show 



that  uninsurance  is  highest  among  blacks,  males,  people  with  incomes  below 
$25,000,  and  those  between  the  ages  of  18-39  (Himmelstein,  1992). 

I  Since  employment  is  the  most  important  determinant  of  health  in- 

surance coverage,  part  of  Florida's  high  uninsurance  rate  can  be  explained  by 
the  characteristics  of  its  business  community.  Large  businesses  are  more  like- 
I    ly  to  offer  health  insurance  as  a  fringe  benefit  than  small  businesses.  But  95 
I    percent  of  Florida's  businesses  employ  fewer  than  25  people.  Among  firms 
with  5  to  9  employees,  323  percent  are  uninsured.  In  even  smaller  firms  (i.e., 
fewer  than  5  employees),  60  percent  are  not  covered  (Florida  Health  Care 
Cost  Containment  Board,  1990a). 

L  Workers  in  government,  mining,  flnance,  insurance,  and  real  estate  are 

I   most  likely  to  be  insured  (EBRI,  1992),  but  these  industries  represent  only 
22.4  percent  of  Florida's  job  market.  Workers  are  least  Ukely  to  be  insured  if 
they  are  self-employed  or  work  in  agriculture,  construction,  retail  trade,  or 
services  (EBRI,  1992).  Florida's  largest  industries  are  services  and  retail 
trade,  representing  almost  49  percent  of  the  state's  1990  work  force  (Florida 
Department  of  Labor  and  Employment  Security,  1991).  Between  1990  and 
2000,  Florida  will  create  an  estimated  2.4  million  new  jobs,  over  half  of  which 


■Based  Insurance 



will  be  in  service  and  retail  trade  occupations  where  insurance  is  lowest 
(Florida  Task  Force  on  Private  Sector  Health  Care  Responsibility,  1991). 

Florida  has  the  second  highest  rate  of  unemployment  in  the  nation  - 
8.7  percent  (U.S,  Department  of  Labor,  1992).  Recent  layoffs  by  employers 
who  typically  o^er  health  insurance  (e.g.,  airlines,  banking,  and  government) 
also  contribute  to  the  state's  burgeoning  uninsurance  problem. 


Health  care  costs  must  be  brought  under  control  to  make  health  care 
available  to  all  Floridians.  As  in  the  rest  of  the  U.S.,  Florida's  overall  health 
care  costs  are  far  outstripping  general  inflation.  An  aging  population,  unheal- 
thy lifestyles,  a  lack  of  access  to  early  primary  and  preventive  care,  and 
proliferating  medical  technology  combined  with  inappropriate  use  of  health 
care  services,  excess  hospital  capacity,  and  fee-for-service  reimbursement  con- 
tribute to  increasing  costs.  Nationally,  the  costs  of  employer  paid  health 
benefits  have  risen  three  times  faster  than  wages  since  1980.  Employee  wages 
and  business  profitability  are  constrained  by  every  dollar  spent  on  health 
care.  Between  1980  and  1990,  Florida's  health  care  expenditures  increased  by 
234  percent,  from  $9.4  billion  to  $31.4  billion.  By  2000,  expenditures  are 



projected  to  reach  as  high  as  $90  billion  (Florida  Task  Force  on  Private  Sector 
Health  Care  Responsibility,  1991). 

Florida's  health  care  inflation  rate  has  consistently  exceeded  the  nation- 
al rate  as  measured  by  the  U.S.  Consumer  Price  Index  component  for 
hospitals  and  related  services.  From  1988  to  1989,  the  state's  health  care 
costs  increased  16.6  percent,  compared  to  11.5  percent  nationally  (Health 
Care  Cost  Containment  Board,  1991).  Florida  Medicaid  expenditures  are 
also  an  indicator  of  the  problem.  Medicaid's  $4.1  billion  budget,  which  has 
tripled  in  the  last  six  years,  is  expected  to  account  for  14  percent  of  the  state's 
total  budget  in  FY  1991-92.  Conservative  projections  anticipate  that  it  will 
triple  again  to  $13.7  billion  by  FY  2000-2001;  and  based  on  the  most  recent 
four-year  trend  data,  expenditures  could  conceivably  reach  $20  billion  by  2000. 

On  average,  Florida  families  spent  $3^92  on  health  care  in  1991,  ac- 
counting for  11.9  percent  of  their  income.  By  2000,  family  health  spending  is 
projected  to  more  than  double  to  $8,235  (Families  USA,  1991).  For  high-risk 
individuals,  the  problem  is  worse.  Enrollment  in  Florida's  high-risk  health  in- 
surance pool  is  limited  to  about  7,500,  and  premiums  represent 
approximately  20.2  percent  of  enrollees'  total  income.  About  65  percent  of  the 
risk  pool's  policy  cancellations  are  for  nonpayment  of  premiums.  High  medi- 
cal costs  are  also  a  factor  in  the  growing  number  of  personal  bankruptcy 


filings.  According  to  the  American  Bankruptcy  Institute,  Florida  ranked 
third  in  the  rate  of  increase  in  bankruptcy  cases  between  1985  and  1991. 

A  study  conducted  by  the  Congressional  Budget  Office  suggested  that " 
a  major  reason  for  high  and  rapidly  rising  health  costs  may  be  the  failure  of 
the  normal  discipline  of  the  marketplace"  (Congressional  Budget  Office, 
April  1991).  Insurance  companies  have  added  layers  of  employees  to 
scrutinize  virtually  all  medical  bills.  Prior  approval  is  needed  before  hospital 
care  or  expensive  treatments  are  performed.  Physicians  are  spending  an  in- 
creasing amount  of  unproductive  time  completing  forms  and  explaining  their 
actions  to  reviewers  in  distant  offices.  Our  health  care  system  is  also  over- 
loaded with  expensive,  underused  hospital  facilities.  In  1990,  Florida's  acute 
care  hospitals  reported  an  average  occupancy  rate  of  only  52.5  percent 
(Florida  Department  of  Health  and  Rehabilitative  Services,  1991).  Acute  care 
facilities  are  engaged  in  a  technological  arms  race  to  obtain  new  diagnostic 
and  therapeutic  equipment  that  attracts  specialty  physicians  and  their 

Rapidly  rising  health  care  costs  are  pushing  us  to  the  brink  of  disaster. 
If  costs  increase  as  projected,  major  government  and  private  sector  employers 
will  be  forced  to  join  small  businesses  in  curtailing  health  care  benefits  and 
expenditures.  In  1990,  corporations  saw  a  27  percent  increase  to  their  health 



care  bill  that  had  nothing  to  do  with  services  for  their  workers  (Stuart 
Altman,  personal  communication,  1991).  We  must  bring  costs  under  control. 
In  neighborhoods  across  the  nation,  high  costs  for  health  care  mean  that: 

•  uninsured  people  use  fewer  health  services  and,  as  a  group,  have  more  illness 
to  cope  with; 

•  families  are  going  bankrupt  trying  to  pay  medical  bills;  and 

•  hospitals  and  other  providers  are  less  willing  and  able  to  provide  free  care. 


Despite  enormous  expenditures  on  health  care,  the  health  status  of 
many  Floridians,  particularly  the  youngest  ones,  has  not  improved  propor- 
tionately. In  1988,  Florida  ranked  only  34th  in  its  infant  mortality  rate,  47th 
in  the  percentage  of  babies  born  to  mothers  receiving  early  prenatal  care,  and 
39th  in  low  birthweight  babies.  One  of  every  13  Florida  births  is  under  2,500 
grams.  One  of  eight  births  to  mothers  under  age  18  is  low  weight.  About 
1,800  infants  die  in  Florida  every  year  before  their  first  birthday.  Statistics 
such  as  these  cast  doubt  on  the  value  of  our  health  care  investment. 

Other  health  status  indicators  present  an  equally  unfortunate  picture. 
Although  TB  cases  have  increased  by  13  percent  since  1987,  federal  TB  fund- 
ing has  declined  by  more  than  63  percent.  Florida  ranks  third  nationally  in 



the  number  of  AIDS  cases.  AIDS  is  now  the  eighth  leading  cause  of  death  in 
Florida.  It  is  estimated  that  another  120,000  Floridians  are  infected  with  HIV. 
Although  AIDS  cases  increased  by  45  percent  from  1990  to  1991,  federal  fund- 
ing for  the  same  period  declined.  The  cancer  death  rate  has  increased  every 
year  since  1979.  From  1981  to  1989,  crude  breast  cancer  rates  increased  by  al- 
most 17  percent  from  112  to  131  per  100,0000,  while  crude  cervical  cancer 
rates  dropped  slightly  from  13.82  to  12.48  per  100,000.  Heart  disease  and 
strokes  kill  over  50,000  Floridians  every  year.  Our  apparent  inability  to  sig- 
niflcantly  improve  health  status,  even  with  our  awesome  investment  in  health 
services,  is  one  of  the  reasons  I  feel  that  comprehensive  rather  than  incremen- 
tal reform  has  become  necessary. 

Previous  Health  Reforms 
Measured  by  its  benefit  package,  the  percentage  of  low-income  popula- 
tion enrolled,  and  the  extent  of  its  provider  network,  Florida  had  one  of  the 
nation's  most  limited  Medicaid  Programs  in  the  early  1980s.  With  the  pas- 
sage of  the  Health  Care  Access  Act  in  1984,  the  state  launched  its  first  major 
health  care  access  and  financing  revolution.  Florida  aggressively  pursued 
major  Medicaid  expansions  throughout  the  1980s,  maximizing  federal  fund- 
ing to  enhance  services  and  cover  additional  groups.  Some  optional  coverages 
implemented  in  Florida  were  later  mandated  by  Congress.  From  1980  to 



1990,  Florida  had  the  largest  percentage  increase  of  all  states  in  its  share  of 
Medicaid  expenditures.  The  state  also  implemented  many  other  health  in- 
surance, cost  containment,  and  primary  care  reforms,  based  on  the  expert 
advice  of  numerous  health  care  task  forces. 

Florida  has  pioneered  several  health  care  reform  strategies,  including 
provider  assessments  to  finance  Medicaid  expansions,  disproportionate  share 
hospital  reimbursement,  the  Improved  Pregnancy  Outcome  Program,  health 
care  networks  for  chronically  ill  and  disabled  children,  and  large-scale 
primary  care  programs  in  county  public  health  units. 

Traditionally,  Florida  has  relied  on  employer-based  health  insurance  be- 
cause the  majority  of  insured  Floridians  are  covered  through  the  workplace. 
Many  of  the  state's  innovations  build  on  this  tradition.  With  Robert  Wood 
Johnson  Foundation  funding,  the  state  has  developed  nationally  recognized 
programs  to  address  the  uninsurance  problem.  The  Healthy  Kids  Corpora- 
tion is  the  first  school-based  health  insurance  program  for  children.  The 
Florida  Health  Access  Corporation  (FHAC)  functions  as  an  intermediary, 
negotiator,  and  insurance  cooperative  for  Florida's  small  businesses.  It  now 
operates  in  16  of  Florida's  67  counties  and  insures  10,000  enrollees  in  2,300 
small  businesses,  reaching  about  7  percent  of  the  small  employer  market 



Florida  is  the  first  state  to  test  a  government-sponsored,  private  non- 
profit corporate  health  care  purchasing  cooperative,  authorized  by  the  1991 
Florida  Legislature.  The  Florida  Healthcare  Purchasing  Cooperative 
(FHPC)  will  act  as  a  pooled  purchaser  for  state  and  local  governments  and 
private  businesses,  particularly  state  contractors  and  small  businesses.  It 
will  aid  private  business  alliances  and  assist  them  in  restructuring  local 
health  care  systems  to  improve  quality  of  care.  Within  five  years  the  coopera- 
tive is  expected  to  serve  50  percent  of  governmental  employers  and  10  percent 
of  eligible  private  employers,  saving  millions  of  dollars. 

In  recent  years,  Florida  has  enacted  significant  small  business  health 
insurance  reforms,  including  a  prohibition  on  the  unilateral  cancellation  or 
non-renewal  of  coverage,  limits  on  premium  increases,  increases  in  the  mini- 
mum percentage  of  total  premiums  that  must  be  paid  out  as  benefits,  limits 
on  premium  increases  due  to  expenses,  and  requirements  that  insurers  com- 
bine smaller  groups  for  rating  purposes. 

Finally,  the  1992  Florida  Legislature  has  just  passed  model  joint  ven- 
tures legislation  prohibiting  health  care  providers  from  referring  patients  to 
laboratories,  diagnostic  centers,  or  any  other  health  service  organization  in 
which  the  referring  provider  is  a  major  investor. 



Healthy  Start  Initiative 
I  cannot  think  of  a  better  way  to  illustrate  why  we  must  succeed  with  our 
reform  plans  in  Florida  than  to  share  with  you  the  most  recent  report  of  the 
National  Commission  to  Prevent  Infant  Mortality  that  we  are  releasing  here 
today,  TVoubling  TVends  Persist:  Shortchanging  America's  Next  Generation. 
In  a  moment,  the  Executive  Director  of  the  Commission,  Rae  Grad,  will  more 
fully  discuss  the  report  in  her  testimony. 

Almost  two  years  ago  to  the  day,  the  Commission  released  another 
report,  also  called  TVoubling  TVends.  in  which  we  tried  to  sound  a  loud  and 
clear  warning  to  the  nation  about  the  poor  state  of  maternal,  infant,  and  child 
health,  and  what  could  be  done  to  improve  the  trends.  Well,  since  we  are  here 
today  with  this  report,  it  seems  that  the  alarm  wasn't  loud  enough.  Not  only 
is  the  nation's  progress  exceedingly  slow  in  a  number  of  areas,  we  are  actually 
going  in  reverse  in  many  of  them. 

This  cannot  continue  if  we  want  to  have  healthy  families,  children  able 
to  learn  in  school,  and  a  productive  workforce  in  the  next  century.  It's  too 
costly,  in  terms  of  money,  human  suffering,  and  lost  potential. 

I  am  proud  to  report  that  we  have  heard  the  message  in  Florida  and 
have  responded  with  our  Healthy  Start  program.  Healthy  Start  has  one 
major  aim  -  to  assure  that  all  women  have  ready  access  to  adequate  prenatal 



care  and  that  their  infants  receive  the  health  care  they  need.  I  am  proud  of 
Healthy  Start  because  it  is  evidence  that  we  in  government  can  be  flexible  and 
creative  and  make  use  of  many  tried  and  true  ideas  that  are  already  working 
out  there,  but  that  have  not  been  able  to  find  their  way  through  the 
bureaucracy  and  the  red  tape. 

Beginning  in  April,  all  pregnant  women  and  infants  in  Florida  will  be 
screened  for  risk  factors  that  could  have  negative  efTects  on  their  health.  We 
will  also  expand  programs  to  serve  the  health  care  needs  of  those  patients 
who  have  defects  identifled  through  screening.  Effective  May  1,  Florida 
Medicaid  eligibility  will  be  increased  from  150  percent  to  185  percent  of  the 
federal  poverty  level  for  pregnant  women  and  children  under  age  1.  In  June, 
the  Medicaid  reimbursement  rate  for  obstetrical  care  will  increase  to  en- 
courage more  providers  to  serve  low-income  patients.  Florida  has  already 
reduced  its  infant  mortality  rate  from  113  deaths  per  1,000  births  in  1985  to 
9.6  deaths  per  1,000  births  in  1990.  I  am  convinced  we  will  make  further  im- 
provements to  the  Healthy  Start  program  as  we  gain  additional  experience 
with  these  interventions. 

Florida  Health  Plan 
Medicaid  expansions  have  greatly  improved  public  coverages  in 
Florida,  but  they  have  proved  to  be  a  double-edged  sword.  Medicaid  now  con- 



sumes  much  of  the  state's  new  general  revenues  each  year-and  the  pressure 
to  expand  will  continue  as  the  population  ages.  Despite  improved  public 
coverages,  major  segments  of  Florida's  population  remain  uninsured.  It  is 
now  clear  that  Florida  must  attack  the  entire  problem,  rather  than  focusing 
on  only  a  few  elements.  Although  I  would  prefer  a  national  solution  to  the 
health  care  crisis,  Florida  can  no  longer  wait  on  federal  action. 

In  January,  1992, 1  announced  a  comprehensive  health  care  reform 
proposal,  the  Florida  Health  Plan,  to  ensure  access  for  all  Floridians  by 
December  31, 1994.  For  the  first  time,  Florida  has  announced  as  a  matter  of 
public  policy  that  every  resident  of  the  state  will  be  ensured  access  to  health 

In  enacting  the  legislation,  which  passed  the  Senate  by  a  vote  of  35  to  2 
and  the  House  of  Representatives  by  a  vote  of  109  to  0,  the  Florida  Legislature 
found  that: 

•  Health  care  inflation,  a  deteriorating  health  care  delivery  system,  reduced 
state  revenues,  changing  demographics,  and  the  erosion  of  private  health 
insurance  have  converged  to  create  a  crisis  of  reduced  access  for  the  poor  and 
the  uninsured. 



•  Access  to  health  care  is  an  increasing  problem  for  many  Floridians,  especially 
for  women  and  young  children,  part-time  employees,  employees  of  small 
businesses,  and  the  unemployed. 

•  The  failure  of  Florida's  health  care  system  to  be  accessible  to  all  residents  is 
not  only  unacceptable  to  the  Legislature  for  humanitarian  reasons,  but  also 
because  it  results  in  inappropriate  and  far  more  costly  use  of  health  resour- 
ces, a  less  productive  work  force,  and  a  less  effective  educational  system. 

•  Almost  half  of  the  uninsured  are  at  or  near  poverty,  requiring  insurance 
reforms  that  significantly  lower  costs. 

•  Almost  three-quarters  of  the  uninsured  are  employed  or  are  dependents  of 
employees,  and  half  of  these  uninsured  are  employed  by  small  businesses. 

•  A  competitive  market  is  lacking  in  some  areas  of  health  care  and,  therefore, 
an  appropriate  level  of  regulation  is  necessary  to  ensure  the  quality,  affor- 
dability,  and  availability  of  health  care  services. 

•  The  problem  of  health  care  access  cannot  be  solved  with  the  simple  expansion 
of  existing  programs,  but  requires  major  reform  of  the  health  care  delivery 

The  Florida  Health  Plan  was  prepared  specifically  for  our  state's 
economy,  reflecting  its  large  percentage  of  small  businesses,  low-paying  ser- 



vice  sector  occupations,  and  significant  seasonal  migrations.  Because  the 
plan  is  grounded  in  a  knowledge  of  Florida's  political  and  economic  environ- 
ment, it  has  found  a  receptive  audience.  Floridians  tend  to  be  conservative, 
prefer  less  government  regulation,  and  support  voluntary  efforts  to  problem- 

The  Florida  Health  Plan  represents  an  appropriate  Southern  strategy 
for  addressing  the  state's  health  care  problems.  The  Health  Care  Reform  Act 
of  1992  is  a  comprehensive,  multi-strategy  approach  to  health  reform  that  in- 
cludes the  following  major  elements: 

•  First,  over  a  two-year  period,  a  new  Agency  for  Health  Care  Administration 
will  consolidate  health  care  financing,  purchasing,  planning,  and  health 
facility,  professional,  and  cost  containment  regulation.  The  agency  will  also 
supervise  Medicaid  and  State  Employee  Health  Insurance  purchasing. 

•  Second,  the  new  agency  will  be  responsible  for  developing  interim  recommen- 
dations by  December  31, 1992,  and  final  recommendations  by  December  31, 
1993  to  fully  implement  the  Florida  Health  Plan,  provide  access  to  basic 
health  services  for  all  Floridians  by  December  31,  1994,  reform  the  health 
insurance  system,  limit  health  care  cost  increases  to  manageable  levels, 
restructure  health  regulation,  and  establish  a  comprehensive  health  care 


58-688  0-92-12 



data  base.  The  Florida  Health  Plan  is  to  be  developed  over  a  two-year  period, 
consistent  with  the  following  principles  and  strategies: 

-  ensure  access  to  affordable  basic  benefits  for  all  residents  of  the  state 
regardless  of  health  condition,  age,  sex,  race,  geographic  location,  employ- 
ment, or  economic  status; 

-  ensure  coverage  of  persons  who  are  unable  to  obtain  or  afford  health 
insurance  coverage  because  of  chronic  or  acute  illnesses; 

-  distinguish  the  roles  state  and  local  government  and  employers  should 
assume  in  the  provision  of  health  care  services; 

-  ensure  that  by  December  31,  1994,  all  employees  and  dependents  have 
coverage  for  basic  health  care  services  or  mandate  that  employers  provide 
such  coverage; 

-  preclude  employer-mandated  coverages  until  state  cost  containment  goals 
have  been  met; 

-  reform  private  health  insurance  practices  to  ensure  coverage  for  employees 
and  their  dependents,  regardless  of  their  health  status  and  employer  size; 

-  ensure  that  an  appropriate  number  and  distribution  of  health  care 
faciUties  and  health  professionals  are  available  throughout  the  state  by 
January  1, 1996; 

-  provide  fair  reimbursement  to  health  care  providers  in  a  timely  and  un- 
complicated manner; 

-  ensure  accessible  health  care  services  in  rural  and  other  medically  under- 
served  areas; 

-  promote  the  accessibility  of  primary  and  preventive  care  and  control  the 
proliferation  of  tertiary  care; 

-  establish  priorities  for  the  use  of  limited  resources,  ensuring  that  higher 
priority  is  given  to  those  programs  that  have  been  shown  to  produce  good 
outcomes,  secure  a  good  value  for  their  investment,  and  provide  a  healthy 
start  for  the  state's  youngest  citizens; 

-  consolidate  the  administration  of  state-funded,  state-administered,  or 
state-sponsored  health  insurance  programs; 



-  develop  a  public  and  private  health  insurance  payer  mechanism  to  simplify 
provider  billing,  reduce  administrative  overhead  costs,  and  maximize 
government  and  third-party  purchasing  power; 

-  develop  a  system  of  handling  medical  negligence  disputes  that  will  ensure 
a  more  efficient  and  equitable  method  for  determining  damages  and  com- 
pensating iiyured  parties; 

-  rely  on  private  providers  for  the  delivery  of  health  services; 

-  ensure  that  all  residents  participate  in  a  public  or  private  plan; 

-  ensure  that  all  residents  contribute,  based  on  their  ability  to  pay,  to  the 
financing  of  their  health  insurance; 

-  provide  basic  health  insurance  benefits  that  promote  healthier  lifestyles, 
require  people  to  assume  greater  responsibility  for  their  health,  and  pro- 
vide early  diagnosis  and  treatment  to  avoid  later  and  more  costly  medical 

-  implement  managed  care  in  public  and  private  health  insurance  plans;  and 

-  redesign  market  entry  controls  to  provide  uniformity  across  all  health  care 
providers,  eliminate  archaic  or  costly  regulatory  rules;  limit  regulation  to 
those  areas  which  require  regulation  due  to  limited  market  needs  and  high 
capitalization  costs;  and  provide  an  appropriate  level  of  regulation  in  areas 
where  market  forces  have  been  unsuccessful  in  constraining  rapidly  es- 
calating costs. 

Third,  a  unique  voluntary  private  health  insurance  coverage  and  cost  con- 
tainment program  will  be  implemented,  including  targets  for  measuring 
progress  from  July  1, 1992,  through  December  31, 1994. 

Fourth,  fundamental  market  and  structural  reforms,  including  "play  or  pay" 
employer  mandates,  will  be  ready  for  implementation  in  1995  if  the  voluntary 
program  fails. 



•  Fifth,  a  single  payer  or  limited  regional  payer  system  may  be  developed  to 
reduce  administrative  costs  and  leverage  volume  discounts. 

•  Sixth,  major  small  business  health  insurance  reforms  will  be  implemented. 
The  legislation  sets  benefit  standards;  prohibits  the  denial  or  nonrenewal  of 
small  employer  plans  because  of  health  status,  claims  experience,  occupation, 
or  geographic  location;  limits  premium  rate  increases  among  classes  of 
employers;  imposes  a  12-month  limitation  on  the  exclusion  of  preexisting 
conditions;  reforms  insurers'  small  business  marketing  practices;  and  estab- 
lishes additional  disclosure,  advertising,  and  performance  standards  for 
long-term  care  insurance.  It  also  creates  a  small  employer  health  rein- 
surance program. 

•  Seventh,  the  legislation  also  tightens  controls  on  hospital  revenues  and 
imposes  larger  penalties  for  failing  to  conform  to  state  limits;  establishes  two 
new  programs:  a  major  statewide  health  promotion  and  wellness  initiative 
and  the  Florida  Health  Services  Corps,  a  health  personnel  deployment 
initiative;  extends  sovereign  immunity  to  practitioners  for  providing  uncom- 
pensated care  to  low-income,  uninsured  people;  mandates  state  contractor 
insurance  of  their  employees  by  July  1, 1994;  restructures  the  state's  health 
care  delivery  to  rely  on  managed  care  and  practice  parameters  to  reduce  the 



costs  of  defensive  medicine;  and  includes  other  health  reforms  to  control 
health  care  facility  capital  costs. 

The  Florida  Health  Plan  charts  an  ambitious  agenda  to  alter  the  way 
the  business  of  health  care  is  conducted  in  Florida.  Its  principles  will  provide 
essential  reference  points  for  all  the  more  detailed  proposals  that  will  be 
developed  over  the  next  few  years.  Businesses,  providers,  and  insurers,  will  be 
asked  to  commit  themselves  to  a  goal  of  ensuring  that  all  Floridians  will  have 
health  care  coverage  by  the  end  of  1994.  If  significant  improvements  are  not 
made  voluntarily,  I  will  propose  greater  market  and  structural  reforms  to  en- 
sure global  health  care  access. 

I  feel  confldent  that  the  people  of  my  state  support  my  vision.  I  will, 
however,  need  your  help  to  fully  implement  our  plan.  Health  care  is  an  area 
in  which  the  states  and  the  federal  government  must  cooperate  closely  to 
achieve  change. 

Laboratories  of  Democracy 

My  friend  David  Osborne,  who  wrote  Laboratories  of  Democracy 

(1990),  was  inspired  by  an  often-quoted  comment  in  a  dissenting  opinion  by 
Supreme  Court  Justice  Louis  Brandeis: 



There  must  be  power  in  the  States  and  the  Nation  to  remould, 
through  experimentation,  our  economic  practices  and 
institutions  to  meet  changing  social  and  economic 
needs.»Denial  of  the  right  to  experiment  may  be  fraught  with 
serious  consequences  to  the  Nation.  It  is  one  of  the  happy 
incidents  of  the  federal  system  that  a  single  courageous  State 
may,  if  its  citizens  choose,  serve  as  a  laboratory;  and  try  novel 
social  and  economic  experiments  without  risk  to  the  rest  of 
the  country. 

The  states  are  Hnding  it  difficult  to  serve  as  laboratories,  particularly 
in  the  area  of  health  care  policy,  because  it  is  subject  to  many  strict  and  un- 
yielding federal  laws  and  regulations.  Several  states,  including  Florida, 
Massachusetts,  Minnesota,  New  York,  Oregon,  and  Washington,  have 
proposed  major  health  care  reforms  to  insure  all  their  citizens.  They  are  will- 
ing to  serve  as  the  nation's  health  care  laboratories,  but  virtually  all  these 
pathfinders  have  been  soundly  criticized,  and  many  of  their  reforms  have 
been  weakened  or  eliminated  in  an  effort  to  make  them  conform  to  federal  re- 
quirements. I  share  the  fear  of  Christopher  Atchinson,  Director  of  the  Iowa 
Department  of  Public  Health: 



States  have  the  opportunity  to  become  laboratories  for 
experimentation,  leading  to  a  solution  to  this  most  difficult 
issue  (health  care).  I  don't  want  our  laboratory  to  be 
underdeveloped  and  overregulated  (National  Governors* 
Association,  1991). 

Franklin  Roosevelt  once  said  that  "practically  all  the  things  we've  done 
in  the  federal  government  are  like  things  Al  Smith  did  as  governor  of  New 
York,"  underscoring  that  many  of  the  New  Deal  social  programs,  including  So- 
cial Security  and  unemployment  compensation,  were  modeled  on  successful 
state  programs  (Osborne,  1990).  The  widespread  retreat  from  federalism  and 
greater  use  of  preemption  prevents  the  federal  government  from  capitalizing 
on  this  proven  approach  for  experimenting  with  social  and  health  reforms. 

The  1960s'  War  on  Poverty  included  a  massive  federal  investment  in 
new  health  care  programs  for  the  elderly  and  the  poor,  community  health 
centers,  and  public  health  funding.  Although  the  Medicare  Program  has  been 
a  successful  mechanism  for  ensuring  health  services  for  the  nation's  elderly, 
its  beneHciaries  are  paying  an  increasing  percentage  of  their  health  care  costs 
out-of-pocket  The  Medicaid  Program  has  helped  the  states  pay  for  the  medi- 
cal care  of  low-income  families  and  supplement  the  coverages  of  elderly  and 



disabled  persons,  however,  it  now  only  covers  40  percent  of  the  nation's 
population  with  below  poverty  incomes. 

The  1970s  was  a  period  of  rapid  technological  advancement,  continued 
investment  in  the  nation's  health  care  infrastructure,  changes  in  the  commer- 
cial health  insurance  market,  growth  in  employer  self-funding,  and  staggering 
increases  in  health  care  expenditures.  For  fiscal  and  ideological  reasons,  the 
1980s  was  a  period  of  retrenchment  Spending  limits,  debt  and  entitlement 
costs  have  forced  the  federal  government  to  slash  block  grants,  ehminate 
federal  programs,  and  try  to  accomplish  its  social  agenda  through  state  man- 
dates, particularly  in  the  area  of  Medicaid.  Greater  responsibility  for  health 
programming  was  shifted  to  the  states  (Fox  and  Schaffer,  1989).  In  the  1990s, 
the  states  are  aggressively  carrying  out  these  responsibilities,  expanding 
coverages,  reforming  insurance  practices,  controlUng  provider  costs,  and  test- 
ing various  managed  care  strategies.  ^ 

The  states  are  now  proposing  more  fundamental  reforms  to  insure  all 
their  citizens  and  reduce  costs  through  the  use  of  alternative  payer  methods. 
Many  of  these  reforms  will  require  federal  approval  and  financial  support 
Unfortunately,  even  in  the  absence  of  national  reforms,  the  federal  response 
has  been  outdated  and  cumbersome  program  regulatory  requirements,  delays 




I  357 

and  inaction  on  state  waiver  proposals,  costly  federal  mandates,  troublesome 
audit  and  disallowance  practices,  and  delays  in  rulemaking. 

'  Mr.  Chairman,  I  concur  with  your  comments  in  October  when  you  said 

I  that: 

Many  states  and  local  communities  have  been  pushed  to  the 
brink  of  economic  disaster  due  to  health  care  expenditures 
I  that  still  allow  far  too  many  to  fall  between  the  cracks  in  our 

^  tattered  safety  net.  State  and  federal  governments  have  often 

failed  to  assess  realistically  the  factors  fueling  this  crisis  and 
to  enact  responsible  reforms...states  clearly  find  themselves 
between  a  rock  and  a  hard  place.  They  have  been  required  to 
provide  more  services  to  more  people-without  the  federal 
government  assuring  that  the  states  will  have  the  resources 
needed  for  these  and  other  crucial  social  programs  that  aHect 

Florida,  like  other  states,  is  suffering  through  what  is  possibly  its  worst 
recession  since  the  Great  Depression.  The  recession  has  resulted  in  sharp 
reductions  in  revenues  and  massive  governmental  funding  cutbacks,  despite 
increased  demands  for  services.  But  the  economic  downturn  has  increased 



my  enthusiasm  for  capitalizing  on  our  opportunities.  We  face  new  challenges 
to  be  more  productive  and  efficient,  to  find  better  ways  to  do  things,  and  to  in- 
crease public  conHdence  in  government  and  the  integrity  of  its  officials. 

Federal  Statutory  and  Regulatory  Reforms 
I  am  optimistic  about  our  chances  of  enacting  major  health  care 
reforms  in  the  near  term.  Meaningful  changes,  however,  require  a  partner- 
ship of  the  federal  and  state  governments.  The  states  are  ready  to  promise 
accountability  in  exchange  for  flexibility.  This  compact  will  permit  us  to  fully 
test  the  health  care  innovations  that  will  serve  as  the  basis  for  national 

The  Bush  Administration's  FY  1993  budget  proposal  sets  a  cooperative 
tone  when  it  asserts  that: 

Innovation  at  the  State  level  can  address  the  problems  of 
rising  medical  expenditures  and  access  to  quality  health 

care  The  Administration  will  continue  to  encourage  States 

to  test  new  and  creative  ideas  and  provide  incentives  to 
experiment  with  new  initiatives,  by  allowing  states  flexibility 
that  is  not  available  under  current  law. 



In  the  same  spirit,  the  1986  Advisory  Commission  on  Intergovernmen- 
tal Relations  adopted  several  principles  intended  to  renew  federalism,  guide 
federal  regulatory  decisions,  and  ehminate  the  federal  government's 
micromanagement  of  state  and  local  governments.  These  principles  are 
worth  reviewing  to  assess  the  negative  impact  of  federal  regulation  on  the 
potential  success  of  health  care  reforms  (Daniels  and  Dimitrief,  1987): 

•  In  most  areas  of  governmental  concern,  state  and  local  governments  uniquely 
possess  the  constitutional  authority,  the  resources,  and  the  competence  to 
discern  the  sentiments  of  the  people  and  govern  accordingly. 

•  The  nature  of  our  constitutional  system  encourages  a  healthy  diversity  in  the 
public  policies  adopted  by  the  people  of  the  several  states  to  their  own 
conditions  and  needs,  and  frees  them  to  experiment  with  a  variety  of  ap- 
proaches to  public  issues. 

•  Policies  of  the  national  government  should  recognize  the  responsibility  of~ 
and  should  encourage  opportunities  for-individuals,  families,  neighbor- 
hoods, local  governments  and  private  associations  to  achieve  their  personal, 
social,  and  economic  objectives  through  cooperative  efforts. 

David  Osborne  has  described  the  new  breed  of  governors,  fully  suppor- 
tive of  federalism,  who  are  now  designing  the  public/private  partnerships 



needed  to  solve  major  social  and  economic  issues.  They  are  either  fighting  or 
coalescing  special  interests  to  get  important  legislation  adopted  on  conten- 
tious social  issues.  There  is  rarely  a  consensus  among  health  care  providers, 
insurers,  businesses,  and  consumers  on  major  health  care  problems.  But 
Florida,  Uke  a  few  other  states,  has  been  able  to  overcome  the  odds  and  adopt 
major  structural  reforms  to  its  health  care  system.  The  states  able  to  achieve 
this  almost  impossible  task  are  now  having  some  of  their  reforms  blocked  at 
the  federal  level. 

In  the  past,  the  states  negotiated  their  health  care  proposals  individual- 
ly with  the  federal  government.  The  state  of  Minnesota  petitioned  Congress 
in  1988  to  "obtain  a  limited  exemption  from  the  ERISA  provisions  that 
prohibit  the  states  from  regulating  employment-based  health  benefits  directly, 
so  that  the  state  could  establish  requirements  or  tax  incentives  directly  affect- 
ing employers  and  employment-based  health  benefits  that  are  intended  to 
protect  consumers,  ensure  adequate  coverage,  promote  access  to  coverage,  or 
promote  competition"  (134  Congressional  Record  S  5,241, 4/29/88).  Oregon 
has  met  steep  resistance  to  its  benefit  design  strategies.  Innovative  proposals 
from  other  states,  including  California  and  Washington,  also  require  federal 
statutory  changes  and  regulatory  waivers  to  proceed.  National  health  care 
reform  proposals,  including  Senator  Mitchell's  HealthAmerica  plan  and  your 



own  National  Health  Insurance  Act,  also  include  innovations  that  would  re- 
quire similar  statutory  and  regulatory  changes. 

There  is  an  emerging  pattern  here.  As  more  and  more  health  care 
reform  proposals  are  presented,  you  will  begin  to  hear  repeated  requests  for 
similar  statutory  changes  and  regulatory  waivers  from  individual  states,  as 
well  as  advocates  of  national  reform.  K  any  of  us  are  to  succeed  as 
laboratories  of  democracy,  we  must  be  given  the  tools  to  experiment 

Recognizing  that  states  are  facing  the  same  problems  and  seeking 
similar  solutions,  the  National  Governors'  Association  adopted  the  position 
that  states  should  be  granted  the  flexibility  needed  to  implement  bold  struc- 
tural changes  to  the  health  care  system.  The  federal  government  must  work 
with  the  states  to  accelerate  comprehensive,  statewide  approaches  to  expand- 
ing access  and  containing  costs  (National  Governors'  Association,  1991). 

To  fully  test  the  state's  health  care  reforms,  Florida  needs  statutory 
changes  and  regulatory  waivers  in  the  areas  of  Medicaid,  the  Employment 
Retirement  Income  Security  Act  of  1974  (ERISA),  Medicare,  and  other  health 
legislative  areas.  I  will  briefly  discuss  needed  changes  in  each  area. 




I  would  like  to  talk  about  Medicaid  "waivers"  in  both  the  generic  and 
the  specific  sense.  That  is,  I  would  like  first  to  talk  about  three  needed  chan- 
ges to  the  Medicaid  statute  so  that  it  matches  what  most  people  think  it 
is— assistance  to  the  states  to  pay  for  health  care  for  the  poor-and  then  talk 
about  other  technical  changes  to  the  current  program. 

First,  we  need  a  statutory  change  to  permit  federal  funding  to  the  states 
to  cover  not  only  the  categorical  eligible,  but  others  with  incomes  at  a  higher 
percentage  of  poverty.  In  addition,  we  should  dispense  with  our  present  com- 
plex eligibility  tests  for  this  group  in  lieu  of  faster  and  simpler  means  such  as 
pay  stubs  and  income  tax  returns.  Not  all  states  could  take  advantage  of  this 
assistance,  and  premium  cost-sharing  by  the  recipient  should  be  required. 
However,  without  federal  assistance  to  help  pay  for  the  large  group  of  unin- 
sured people  with  incomes  above  current  Medicaid  levels,  state  governments 
cannot  reasonably  be  expected  to  shoulder  the  financial  burden  alone.  Nor 
does  the  prospect  of  fully  insuring  our  citizens  at  an  affordable,  non-sub- 
sidized price  seem  a  realistic  alternative. 

Second,  we  should  rethink  the  nature  of  assistance  to  the  states  to  pur- 
chase health  insurance  for  low-income  citizens.  That  is,  it  need  not  be 
entirely  entitlement  driven.  Florida  is  proposing  a  Medicaid  Buy-In  program 



that  would  offer  a  basic,  low-cost  plan  targeted  at  people  with  lower  incomes 
and  small  businesses.  Even  without  a  premium  subsidy,  it  would  be  helpful  to 
have  a  federal  partner  to  back  the  risk  of  adverse  experience  at  Medicaid 
financial  participation  rates.  Today,  if  we  attempt  such  a  program,  we  are 
completely  at  risk,  even  though  we  are  trying  to  solve  a  shared  federal  and 
state  problem.  The  same  is  true  for  "high  risk"  health  insurance  pools  with 
which  our  state  and  others  have  experimented. 

Third,  as  this  recession  has  once  again  shown,  when  times  are  bad,  wel- 
fare and  Medicaid  rolls  increase  at  the  same  time  state  revenues  decrease. 
The  result  is  a  gut-wrenching  reduction  in  services  and  eligibility  at  the  very 
moment  that  need  is  on  the  rise.  Unlike  the  federal  government,  the  states  do 
not  have  the  ability  to  cushion  economic  downturns.  What  is  needed  is  sig- 
nificantly enhanced  federal  Medicaid  matching  funds  during  economic 
downturns— be  they  regional  or  national  in  nature. 

Now  let  me  turn  to  some  specific  areas  in  which  the  states  need 
regulatory  rehef. 

First,  we  need  relief  from  the  often  picayune  nature  of  federal  audits 
and  disallowances  in  the  Medicaid  program.  These  audits  cost  the  states  mil- 
lions of  dollars,  do  not  involve  any  serious  allegations  of  harm  to  patients. 



and  seriously  jeopardize  a  harmonious  federal-state  relationship.  For  in- 
stance, my  state  recently  lost  $7  million  in  federal  funds  because  licensing 
inspectors  signed  ICF/MR  certification  forms  3  to  9  days  late.  The  inspection 
had  been  completed  in  a  timely  fashion,  and  no  threat  to  life  or  safety  was 
found.  Nonetheless,  all  federal  expenditures  were  disallowed,  and  the  Federal 
Grant  Appeals  Board  was  not  permitted  to  take  these  circumstances  into  ac- 
count. I  recommend  to  you  Senate  Bill  1240  (Chaffee  and  Riegle),  which 
would  remedy  these  problems  and  promote  better  federal  and  state  harmony. 

Second,  our  ability  to  launch  cost  containment  initiatives  is  severely  im- 
peded by  current  federal  "freedom  of  choice"  and  HMO  requirements.  While 
HCFA  has  done  much  in  the  last  year  to  streamline  these  requirements, 
emulation  of  private  sector  cost  containment  initiatives  is  extremely  difficult 
in  the  Medicaid  program  due  to  these  requirements.  For  instance,  the  cur- 
rent "75/25"  rule  with  regard  to  Medicaid  HMOs  has  outlived  its  usefulness, 
and  this  statute  should  be  repealed.  HMOs  show  much  promise  for  public 
and  private  patients  alike.  Where  entities,  particularly  public  hospitals  and 
local  health  departments,  have  organized  health  care  for  Medicaid  recipients 
in  a  better  way,  we  do  not  believe  they  should  be  terminated  from  the  program 
(or  forced  through  interminable  bureaucratic  hoops)  simply  because  they  do 



not  enroll  private  patients.  We  believe  the  issue  is  quality,  not  the  proportion 
of  enrollments  a  payer  funds. 

j  Third,  there  are  a  host  of  technical  issues  that  need  remedy  in  the  areas 

j    of  demonstrations,  freedom  of  choice  and  home  and  community-based 
waivers  in  the  Medicaid  program.  In  the  area  of  demonstrations,  for  ex- 
ample, it  Hterally  requires  "an  act  of  Congress"  to  extend  these  programs 
beyond  three  years.  For  states  who  are  trying  to  revolutionize  their  health  sys- 
I    terns,  and  incurring  all  the  political  and  economic  unrest  associated  with  such 
a  change,  this  is  a  discouraging  factor.  Not  only  is  the  time  too  short,  but  also 
the  potential  pitfalls  of  assuring  that  Congress  will  continue  the  program  are 
great,  making  use  of  this  waiver  authority  risky  business  at  best.  What  if  the 
program  is  started,  goes  through  growing  pains,  and  then  Congressional  ap- 
proval is  not  obtained? 

Some  of  the  home  and  community-based  and  freedom  of  choice  waivers 
demonstrate  the  problems  with  the  current  statutory  setup.  For  instance, 
freedom  of  choice  waivers  must  be  evaluated  at  the  time  of  submission  of  the 
renewal  waiver  (two  years).  However,  the  waiver  request  (and  evaluation) 
must  be  submitted  at  least  three  months  prior  to  renewal,  and  time  must  be  al- 
lowed for  startup  (about  six  months),  and  for  data  collection  and  analysis 
(three  months).  In  addition,  claims  data  are  usually  available  only  three 



months  after  services  have  been  provided  (due  to  slow  claims  filing  by 
providers).  This  means  that  at  best,  nine  month's  worth  of  data  can  be 
analyzed  prior  to  renewal— frequently  too  short  a  time  to  permit  a  valid 
analysis.  The  result,  whether  a  waiver  renewal  or  denial,  is  that  judgments 
are  made  on  skimpy  data.  To  add  insult  to  injury,  these  evaluations  are  re- 
quired to  be  continued— technically  every  two  years—for  as  long  as  the 
program  is  successful  and  is  renewed  by  the  state.  This  wastes  a  lot  of  our 

Fourth,  we  need  to  rethink  several  federal  Medicaid  requirements 
visited  by  federal  law  onto  the  states.  One  of  the  most  important  is  the 
"Boren  amendment,**  which  is  being  interpreted  by  the  courts  as  a  mandated 
return  to  cost-based  institutional  reimbursement.  This  is  the  very  thing  the 
Boren  amendment  was  designed  to  correct,  by  permitting  experimentation 
with  prospective  and  other  forms  of  reimbursement.  Still  another  problem  is 
the  requirement  that  all  drugs  be  covered  for  which  there  is  a  federal  rebate 
agreement,  without  restriction,  for  the  first  six  months  of  market  entry.  The 
list  goes  on  and  on. 

The  important  point  is  that  we  need  to  rethink  this  entire  Medicaid 
jtatutetf  we  are  going  to  let  states  have  the  flexibility  to  cost-effectively  pur- 
chase health  care  for  our  citizens.  After  all,  the  federal  government  gets  a 



j    larger  share  of  the  savings  than  the  states.  What  we  want  to  do  is  reinvest 
I    that  savings  by  spending  it  on  care  for  people  who  are  not  covered  today. 

I  Fifth  and  finally,  we  need  to  rethinic  federal  policy  in  the  area  of  the 


I    "Qualified  Medicare  Beneficiary/  also  known  as  the  QM B.  This  well-inten- 
tioned federal  policy,  stemming  from  what  little  is  left  of  the  Medicare 
Catastrophic  Act  of  1988,  is  posing  a  large  administrative  and  expenditure 
burden  on  the  states.  In  our  state,  we  are  required  to  pay  premiums,  co-in- 
surance and  deductibles  for  people  who,  in  addition  to  having  the  benefit  of 
Medicare  insurance,  by  1994  will  have  incomes  up  to  120  percent  of  poverty. 
In  1989  and  1990  Florida  spent  $20  million  more  on  Part  A  premiums  than  it 
would  have  spent  simply  by  paying  for  care  outright. 


In  addition  to  Medicaid  changes,  I  am  asking  that  Congress  explore  the 
state-by-state  administration  of  Medicare  payments  and  the  implementation 
of  managed  care  for  Medicare  beneficiaries.  In  enacting  the  Medicare  and 
Medicaid  programs.  Congress  decided  to  establish  a  federally  administered 
health  program  for  the  elderly  and  some  disabled  persons,  but  a  state  ad- 
ministered program  of  medical  assistance  for  low-income  families  and  other 
disabled  and  long-term  care  patients.  There  is  no  inherent  reason  that  ad- 



ministration  of  these  programs  should  continue  in  this  way.  In  fact,  the  con- 
tinuation of  this  peculiar  administrative  split  impairs  state-level  health  care 
reform  planning. 

In  many  respects,  Medicaid  is  becoming  a  supplemental  insurance  pro- 
gram for  low-income  or  institutionalized  Medicare  beneficiaries.  But  the 
states  do  not  have  the  discretion  to  merge  their  Medicare  supplemental 
coverages  with  the  federal  Medicare  Program.  The  result  has  been  a  lack  of 
coordinated  coverages  for  the  nation's  elderly.  The  states  are  unable  to  maxi- 
mize the  value  of  Medicare  investments  by  broadening  long-term  care 
coverages  to  include  home  and  community-based  services. 

In  Florida,  health  reforms  for  elders  have  lagged  behind  innovations 
for  families  and  children  because  of  federal  Medicare  administration.  States 
are  more  knowledgeable  of  their  populations  and  health  care  systems  than 
the  federal  government  is,  but  their  unique  abiUty  to  plan  programs  for 
Medicare  beneficiaries  that  provide  greater  levels  of  services  at  less  cost  is 
hampered  by  rigid,  uniform  regulation. 

Section  402  of  the  Social  Security  Amendments  of  1967  (EL.  90-248) 
authorized  the  Secretary  of  the  Department  of  Health  and  Human  Services  to 
conduct  demonstration  projects  to  determine  the  effectiveness  of  health  care 



reimbursement  systems  established  under  state  law.  The  Health  Care  Financ- 
ing Administration  has  supported  a  variety  of  Medicare  and  Medicaid 
prospective  reimbursement  and  rate  setting  programs  administered  by 
several  states.  The  most  notable  experiments  were  the  all-payer  reimburse- 
ment systems  authorized  in  Maryland,  Massachusetts,  New  Jersey,  and  New 
York.  When  Medicare  began  to  participate  in  these  reimbursement 
demonstrations,  there  was  Uttle  data  on  the  success  of  alternative  reimburse- 
ment methods.  Later  they  narrowed  their  demonstration  interests  to 
diagnosis-related  units  of  payment  that  eventually  led  to  the  creation  of  the 
successful  Medicare  Prospective  Payment  System. 

A  similar  rationale  now  exists  for  Medicare  and  Medicaid  demonstra- 
tions of  single  payer  systems.  They  could  very  well  be  the  next  major  health 
care  cost  containment  tool.  State  experiments  of  single  payer  systems,  assum- 
ing other  ERISA  and  antitrust  waivers,  should  include  the  federal  Medicare 
Program.  With  its  large  elderly  population  that  accounts  for  more  than  60 
percent  of  hospital  expenditures,  Florida  would  be  an  ideal  site  to  test  a  con- 
gressionally  authorized  single  payer  system. 

Medicare  has  fallen  behind  the  states  in  experimenting  with  managed 
care  and  utilization  control  programs.  I  believe  Medicare  needs  to  further 
test  alternative  case  management  strategies  for  the  same  reasons  it  tested  al- 



ternative  reimbursement  systems  in  the  1970s  and  1980s.  To  capitalize  on 
state  managed  care  and  utilization  control  systems,  Congress  should 
authorize  state  managed  care  demonstrations  to  learn  how  to  better  control 
Medicare  beneflciaries'  use  of  services,  improve  the  quality  of  needed  care, 
and  decrease  per  capita  costs. 

For  these  reasons,  I  recommend  that  Medicare  laws  be  amended  to  per- 
mit wide-scale  demonstrations  of  alternative  payer  systems  and  Medicare 
beneficiary  managed  care  programs.  Section  1886(c)  of  the  Social  Security 
Act,  as  added  by  the  Tax  Equity  and  Fiscal  Responsibility  Act  of  1982,  permits 
the  HHS  Secretary  to  waive  ordinary  methods  of  Medicare  payment  and  per- 
mit experimental  state  cost  control  systems  with  respect  to  hospital 
reimbursement.  This  provision  could  be  amended  to  authorize  HHS  to  con- 
duct experimental,  state  administered  cost  control  and  managed  care 
systems,  including  state  administration  of  all  Medicare  benefits  through 
single  payer  systems. 


Since  three  out  of  four  uninsured  Floridians  are  either  employed  or  de- 
pendents of  employed  people,  there  is  no  doubt  that  Florida's  plans  for  an 
employer-based  full  access  health  care  system  will  require  several  key  private 



health  insurance  reforms  to  succeed.  My  reform  plan,  which  preserves  a  role 
for  commercial  insurance  and  self-insuring  employers,  cannot  be  fully  imple- 
mented because  of  the  Employee  Retirement  Income  Security  Act  (ERISA). 
Though  private  employer-based  coverage  is  the  number  one  source  of  health 
insurance  for  most  Floridians,  spiraling  premium  costs  have  placed  these 
policies  out  of  reach  for  most  small  or  medium-sized  businesses  and  their 
workers.  The  gradual  failure  of  the  private  health  insurance  industry  to  serve  ^ 
the  small  business  market  in  an  affordable  manner  is  one  of  the  primary 
reasons  we  have  developed  the  Florida  Health  Plan. 

In  the  past  two  sessions,  the  Florida  Legislature  has  enacted  major 
private  health  insurance  reforms.  However,  the  state  cannot  enact  the  addi- 
tional reforms  needed  to  equitably  spread  risk  across  all  groups,  guarantee  a 
minimum  level  of  coverage,  or  install  managed  care  or  alternative  payer  sys- 
tems because  of  ERISA  preemption  of  state  regulation.  Skeptics  of  such 
reforms  contend  that  only  a  government  operated  universal  health  care  pro- 
gram will  achieve  the  systemic  changes  Americans  are  demanding. 
Practically  and  philosophically,  however,  I  favor  continuation  of  the  employer- 
based  system.  I  believe  it  is  a  system  that  Americans  generally  favor  and  want 
to  preserve. 



The  Florida  Health  Plan  will  initially  try  to  achieve  health  care 
coverage  for  all  Floridians  by  relying  primarily  on  employers.  Employer 
responsibility  for  providing  health  insurance  coverage  for  full-time  workers 
and  their  dependents  will  be  voluntary  for  a  period  of  two  and  one-half  years. 
But  this  plan  represents  more  than  a  business-as-usual  approach  to  the  prob- 
lem. We  will  begin  setting  targets  that  challenge  our  business  community  to 
make  a  commitment  to  expand  health  insurance  on  a  voluntary  basis.  K  sub- 
stantial progress  is  being  made  towards  covering  all  Floridians  by  the  end  of 
1994, 1  will  recommend  continuation  of  the  voluntary  approach.  But  if  this 
proves  ineHiective,  I  will  propose  more  fundamental  reforms,  possibly  includ- 
ing a  "play  or  pay"  mechanism,  in  which  employers  would  have  the  choice  of 
either  providing  insurance  benefits  directly  or  paying  into  a  public  fiind  for 
their  employees'  coverage. 

In  today's  private  multi-payer  system,  it  has  not  been  possible  to  limit 
overall  health  care  spending  with  payments  and  reimbursements  flowing  from 
so  many  sources.  In  addition  to  Medicare  and  Medicaid,  770  private  in- 
dividual carriers  write  health  insurance  policies  in  Florida.  (Florida  House  of 
Representatives,  1991)  This  multi-payer  system  exerts  little  control  over 
health  care  costs.  We  know  that  health  care  costs  are  skyrocketing  and  that 
care  is  unavailable  to  millions  of  our  citizens.  Therefore,  we  need  to  develop 



strategies  to  slow  the  runaway  cost  of  health  care.  Unfortunately,  the 
problems  of  the  employer-based,  private  health  insurance  system  will  become 
worse  if  states  are  not  given  additional  powers  to  regulate  the  system. 

In  1974,  the  93rd  Congress  enacted  the  Employee  Retirement  Income 
Security  Act.  Congress  determined  that  the  national  interest  required  legisla- 
tion to  protect  employee  beneHts.  It  also  determined,  because  of  growth  in  the 
size,  scope,  and  numbers  of  employee  benefit  plans,  that  their  operational 
scope  and  economic  impact  is  increasingly  interstate,  that  the  continued  well- 
being  and  security  of  millions  of  employees  and  their  dependents  is  directly 
affected  by  these  plans,  and  that  interstate  commerce  must  be  protected  by 
preempting  state  regulation  of  employee  benefit  plans  (RL.  93-406). 

Since  then,  a  coalition  of  groups,  including  labor,  business,  and  in- 
surers, have  become  a  powerful  force  against  any  modification  of  the  ERISA 
semi-preemption  clause.  In  fact,  extension  of  the  preemption  to  commercial 
insurance  has  been  proposed.  Fox  and  SchaHer's  analysis  of  legislative 
materials  and  interviews  with  key  legislators  and  lobbyists  demonstrate  that 
labor  and  interstate  employers  wanted  to  prevent  three  things:  (1)  state 
regulation  of  health  and  pension  plans  negotiated  by  management  and  labor, 
(2)  state  interference  in  collective  bargaining,  and  (3)  state  taxation  of 
premiums.  They  also  wanted  to  ensure  uniformity  of  regulation  of  national 



contracts  and  the  freedom  to  exchange  benefits  for  cash  wages  or  one  benefit 
for  another  (Fox  and  Schaffer,  1989).  Only  a  few  amendments  since  1974 
have  successfully  run  the  gauntlet  of  special  interests:  (1)  the  exemption  of 
Hawaii's  Prepaid  Health  Care  Act,  (2)  the  authorization  of  state  regulation  of 
multiple  employer  trusts,  and  (3)  the  mandate  for  states  to  require  insurers 
to  make  Medicaid  a  secondary  payer  (Fox  and  Schaffer,  1989). 

ERISA  has  been  construed  by  the  courts  as  having  an  extremely  broad 
preemptive  effect  with  little  room  for  state  involvement,  with  the  possible  ex- 
ception of  the  regulation  of  benefits  (as  opposed  to  benefit  plans)  and  of 
self-insuring  employers  who  use  a  third  party  administrator  to  manage  plan 
benefits  (Ballam,  1989).  Legal  analyses  of  the  states'  ability  to  make  major 
structural  health  care  reforms  under  ERISA  are  bleak.  Only  a  decision 
authored  by  Supreme  Court  Justice  Arthur  Kennedy  when  he  was  a  judge 
with  the  9th  Circuit  Court  offers  any  promise.  He  concluded  that  self-insur- 
ing employers  who  purchase  stop-loss  insurance,  as  most  do,  are  subject  to 
state  regulation  (Fox  and  Schaffer,  1989). 

ERISA  has  had  major  effects  on  the  nation's  health  policies  and  is  now 
delaying  the  further  development  of  important  health  care  reforms.  Although 
the  original  purposes  of  Section  514  may  still  be  worthy,  continuing  to 
preclude  state  regulation  of  self-funded  plans  will  come  at  a  great  expense: 



•  States  may  move  ahead  with  health  reforms,  risking  a  likely  ERISA  challenge 
that  could  delay  implementation  for  years.  Massachusetts  passed  a  law 
taxing  employers  to  fund  health  insurance  benefits  for  the  uninsured.  Tax 
proceeds  would  be  rebated  doUar-for-doUar  for  health  premium  expendi- 
tures. This  provision  is  currently  being  litigated.  Others  may  attempt  to 
capitalize  on  judicial  decisions  that  seem  to  permit  regulation  of  self-funded 
employer  plans  if  they  do  not  impose  an  undue  administrative  burden  on  the 
self-insurer,  purchase  stop-loss  insurance,  or  are  administered  by  a  third 
party  (Fox  and  Schaffer,  1988;  Fox  and  Schaffer,  1989;  Ballam  1989,  Firfer, 

•  States  may  be  immobilized,  stuck  at  the  proposal  stage,  fearing  litigation  and 
interminable  delays,  but  unwilling  either  to  implement  minor  incremental 
changes  or  more  radical  changes. 

•  States  may  abandon  the  employer-based  and  private  insurance  system  that 
Americans  prefer  and  implement  universal  programs  modeled  on  the 
Canadian  system  that  sidestep  ERISA  preemption. 

•  Fearing  employer  mandates,  businesses  may  rush  to  self-insure,  further 
eroding  state  regulation  of  health  insurance  and  preventing  the  universal 
sharing  of  risk  that  is  essential  to  most  major  health  care  reform  proposals. 



Although  not  fatal  to  my  plan,  failure  to  achieve  ERISA  reforms  will 
prevent  the  implementation  of  key  parts.  It  will  prevent  Florida  from  regulat- 
ing self-funded  employee  benefits  or  benefit  plans,  mandating  employer 
insurance,  or  possibly  affect  any  employer  tax  to  finance  health  reforms.  I  un- 
derstand that  forsaking  ERISA  protections  would  be  a  difHcult  decision,  and 
alternatives  would  be  exceedingly  difficult  to  draft  because  of  so  many  special 
interests  in  legislative  protections. 

More  than  50  percent  of  Florida's  covered  workers  are  employed  by  self- 
insuring  Hrms.  Failure  to  secure  changes  in  ERISA  will  result  in  (1)  an 
uneven  playing  fleld  between  commercial  insurers  and  self-funded  plans;  (2) 
continued  cost  shifts  to  larger  self-funded  plans  because  smaller  employers 
cannot  afford  commercial  insurance;  (3)  possible  abandonment  of  the 
employer-based  and  private  insurance  system;  and  (4)  the  possible  erosion  of 
benefits  for  employees  in  unregulated  self-funded  plans.  There  are  several 
possibilities  for  solving  the  states'  dilemma  and  providing  relief  from 
ERISA's  stringent  standards: 

•  Establish  national  benefit  standards,  employer  insurance  requirements,  and 
a  uniform  system  of  regulation  by  modifying  ERISA  or  amending  other 
statutes  (e.g..  Internal  Revenue  Code,  Social  Security  Act,  Public  Health 



Service  Act)  to  regulate  both  insured  and  self-insured  plans  (Committee  on 
j      Ways  and  Means,  U.S.  House  of  Representatives,  1990). 

I  •  Simply  repeal  the  ERISA  preemption  clause,  allowing  the  states  to  fully 
regulate  health  insurance,  including  self-funding  plans;  this  will  permit 
states  to  regulate  all  insurers  equally. 

•  Alternatively,  repeal  ERISA  preemption  for  all  benefit  plans  except  those  that 
I  are  negotiated  by  interstate  employers  or  by  national  unions,  requiring  the 
^      states  to  permit  interstate  benefit  plans  to  show  equivalency  to  mandated 


•  Repeal  the  ERISA  preemption  clause  for  states  that  ensure  basic  benefit 
coverage  for  all  citizens. 

•  Allow  the  Secretary  of  the  Department  of  Labor  to  waive  statutory  require- 
ments to  test  ERISA-prohibited  reforms,  such  as  employer  mandates  and 
single  payer  systems. 

•  Authorize  state-specific  state  health  reform  demonstrations  in  federal 

•  Limit  ERISA  protections  to  currently  self-funded  plans,  preventing 
employers  not  currently  insuring  their  employees  from  fleeing  to  ERISA 



protection  by  self-insuring  when  states  impose  mandates  or  other  regulatory 
reforms  on  non-ERISA  protected  insurers. 

•  Amend  ERISA  to  permit  states  to  spread  the  risk  of  high-cost  cases  to  all 
insurers,  commercial  or  self-funded. 

I  recommend  that  Congress  schedule  testimony  as  soon  as  possible  to 
draft  ERISA  revisions  that  balance  the  special  interests  of  labor,  business, 
and  insurers  with  those  of  states  confronted  by  rising  health  care  costs  and  in- 
creasing uninsurance  rates. 

I  would  like  to  add  that  I  fully  support  private  sector  efforts  to  solve  our 
health  care  cost  and  access  problems,  but  I  am  also  aware  of  the  depth  of 
these  problems,  and  the  extreme  difHculty  we  as  a  nation  have  had  in  attempt- 
ing to  solve  them.  If  private  efforts  alone  could  provide  access  for  all  citizens 
to  health  care  at  a  reasonable  price,  I  believe  they  would  already  have  done  so. 
A  real  solution  to  our  growing  health  care  dilemma  will  require  a  public- 
private  partnership  and  a  cooperative  effort  by  all  concerned. 

Other  Regulatory  Issues 
I  would  like  to  commend  Congress  on  its  recent  history  of  enacting 
stronger  federal  certification  standards  for  the  nation's  health  care  facilities. 
In  particular,  the  OBRA  87  requirements  have  led  to  better  care  in  our  state's 



long-term  care  facilities.  The  number  of  nursing  home  residents  who  are 
physically  restrained  has  dropped  from  55  percent  in  1987  to  17  percent  in 
1992.  In  addition,  the  COBRA  hospital  emergency  access  provisions,  which 
parallel  Florida's  state  licensure  requirements,  have  strengthened  our  posi- 
tion in  forcing  hospital  compliance  and  ensuring  proper  handling  of 
emergency  room  patients. 

Florida,  however,  takes  issue  with  some  federal  quality  of  care 
regulatory  requirements.  First,  Florida  is  opposed  to  further  privatization  of 
the  certification  process.  HCFA  currently  allows  hospitals  accredited  by  the 
Joint  Commission  on  the  Accreditation  of  Health  Care  Organizations 
(JCAHO)  to  substitute  JCAHO  accreditations  for  federal  certification  sur- 
veys. I  understand  that  HCFA  is  studying  the  feasibility  of  deeming  private 
accreditations  obtained  by  other  health  care  facilities  for  Medicare  and 
Medicaid  certification  purposes.  I  believe  that  regulation  of  quality  of  care  is 
a  public  health  responsibiUty  that  cannot  be  delegated  to  the  private  sector. 
Private  assessments  are  more  costly,  provide  for  less  public  disclosure  of  find- 
ings, and  are  less  stringent  If  this  function  is  delegated,  the  surveys 
conducted  by  private  accreditation  organizations  should  at  least  conform  to 
federal  standards. 



In  addition,  I  believe  that  HCFA  has  focused  on  the  certification  stand- 
ards for  long-term  care  institutions,  home  health  agencies,  and  clinical 
laboratories,  giving  less  attention  to  the  quality  of  care  improvements  needed 
in  other  health  care  facilities.  I  recommend  that  a  more  balanced  regulatory 
process  be  adopted  in  which  HCFA  attends  to  the  quality  of  care  requirements 
of  all  health  care  facilities  subject  to  Medicare  and  Medicaid  certification. 

My  state  agencies  are  also  concerned  about  the  time  elapsing  between 
legislation  and  draft  regulations  and  between  draft  and  final  regulations,  as 
evidenced  by  the  time  needed  to  conclude  OBRA  87  and  CLIA  rulemaking. 
Implementation  delays  make  it  difTicult  for  the  states  to  determine  future 
resource  requirements,  or  to  work  with  health  care  providers  to  ensure  a 
smooth  transition  to  new  standards. 

I  beUeve  that  Congress  should  authorize  state  "equivalency,"  allowing 
the  states  to  substitute  their  licensure  standards  for  similar  federal  stand- 
ards. I  also  support  federal  matching  funds  for  innovative  state  licensure 
programs  that  are  outcome  oriented,  lead  to  superior  care,  and  contain  health 
care  costs.  Finally,  I  believe  that  Congress  and  HCFA  should  be  ever  mindful 
that  overregulation  is  expensive  and  simply  drives  up  costs,  making  insurance 
less  affordable.  Detailed  fiscal  impacts,  using  estimates  from  the  states. 



should  be  prepared  to  assess  the  cost  implications  of  new  federal  regulatory 

Heavy  federal  regulation  of  the  states'  health  care  systems,  including 
Medicare,  Medicaid,  and  ERISA  dictates,  has  stressed  uniformity  over  ex- 
perimentation. However,  uniformity  is  more  desirable  in  some  areas  than  in 
others  (e.g.,  currency).  It  is  also  more  desirable  when  there  is  a  consensus 
about  what  should  be  done.  Until  the  imposition  of  a  national  health  in- 
surance program,  states  should  not  be  prohibited  from  taking  different 
approaches  to  common  problems.  Uniformity  is  simply  a  euphemism  for  the 
disablement  of  state  authority  (Wolfson,  1988).  This  suggests  a  final  option 
that  I  would  like  to  mention. 

Because  of  the  overriding  importance  of  testing  alternative  structural 
health  care  reforms  in  anticipation  of  national  preemption  through  a  nation- 
al health  care  program  or  a  highly  federally  regulated  state-administered 
health  program.  Congress  could  legislate  a  new  section  of  the  Social  Security 
Act,  authorizing  large-scale  demonstrations  of  health  care  reform  plans.  This 
could  include  generalized  authority  for  waiving  Medicaid,  Medicare,  ERISA, 
federal  antitrust  laws  (needed  for  implementation  of  a  single  payer  system), 


58-688  0-92-13 


and  any  other  statutes  or  regulations  necessary  to  obtain  a  full  test  of  an  in- 
novative health  care  reform  plan  involving  multiple  federal  programs. 

Correcting  the  inadequacies  of  my  state's  health  care  system  and  secur- 
ing sufficient  revenues  to  fund  essential  public  services  are  two  of  my  biggest 
challenges  as  governor.  Florida's  problems,  although  unique  in  some 
respects,  are  similar  to  those  faced  by  all  governors,  Congress,  and  the  Presi- 
dent Major  health  care  reform  is  now  at  the  forefront  of  public  debate. 
Although  a  Bush  Administration  proposal  and  several  congressional  bills 
propose  to  redesign  our  complex  health  care  system,  there  is  no  assurance 
that  Congress  and  the  Administration  will  agree  on  health  care  reforms  in  the 
near  future.  The  year  of  a  presidential  election  is  not  a  time  when  party  dif- 
ferences will  be  laid  aside  easily,  but  our  citizens  demand  and  deserve  a 
bipartisan  approach  to  health  reform.  Now  is  the  time  for  leadership  and 
statesmanship.  The  longer  we  delay,  the  more  our  options  narrow.  We  have 
long  passed  the  point  that  minor  tinkering  will  solve  the  problem.  We  have  no 
choice  but  to  act  boldly. 

Perhaps  it  is  also  necessary  to  acknowledge  that  many  of  the  important 
players  in  the  health  care  industry  benefit  economically  under  the  current  sys- 
tem. Under  these  circumstances,  we  would  naturally  expect  that  those  who 
are  doing,  well  may  be  reluctant  to  advocate  change.  But  we  question  how  long 



this  state  of  affairs  can  continue.  When  we  hear  it  said  that  the  United 
States  has  the  best  health  care  in  the  world,  we  must  remind  ourselves 
that  it  is  only  the  best  for  the  people  who  have  access  to  it.  We  cannot 
continue  to  ignore  the  millions  without  coverage. 

Our  people  have  spoken;  they  want  government  to  ensure  health 
care  for  all.  There  is  neither  an  easy  solution,  nor  a  single  solution, 
and  many  difficult  steps  must  be  taken  to  recast  our  health  care 
system  into  one  that  is  effective,  economical,  and  available  to  all.  My 
job  and  yours  is  to  aggressively  tackle  the  remaining  problems  and 
find  the  path  to  true  health  care  reform.  Further  delay  is  no  longer 
acceptable  to  the  people.  I  am  convinced  that  the  solution  lies  in 
granting  the  states  the  additional  flexibility  they  need  to  test  their 
innovative  health  reform  plans. 



Mr.  DiNGELL.  Governor,  the  committee  thanks  you  both  for  your 
presence  and  for  your  very  valuable  testimony  and  statement.  I 
feel  particularly  pleased  to  see  an  old  friend  back  before  us. 

The  Chair  is  going  to  recognize  now  my  colleagues,  starting  with 
Dr.  Rowland. 

Mr.  Rowland.  Thank  you,  Mr.  Chairman.  Thank  you  very  much, 
Governor  Chiles,  for  your  comments. 

Let  me  ask  you  a  little  bit  about  the  Medicaid  buy-in  that  you 
propose  there.  I  think  that  one  of  the  most  difficult  problems  that 
we  have  in  trying  to  basically  restructure  our  health  care  delivery 
system  is  a  mechanism  to  finance  it.  That's  not  just  true  for  this 
country.  I  have  visited  several  Western  European  countries.  I  have 
been  to  Canada.  All  of  them  are  having  increasing  difficulty,  the 
governments  are  having  increasing  difficulty  in  finding  ways  to  fi- 
nance the  increasing  demands  on  those  systems  and  they  are  strug- 
gling to  do  that. 

It  seems  to  me  that  the  Medicaid  program  has  been  one  that  is 
subject  to  great  abuse  by  recipients  as  well  as  providers  of  care, 
and  while  it  has  brought  care  to  the  poor  and  has  helped  improve 
their  situation  significantly,  it  has  cost  far  more  than  was  ever  an- 
ticipated at  the  time  of  its  inception. 

What  types  of  cost  containment  measures  have  you  thought 
about  if  there  is  a  buy-in  into  the  Medicaid  program?  How  will 
those  abuses  that  have  occurred  be  controlled? 

Governor  Chiles.  I  think  there  may  be  several  ways.  One,  we 
are,  in  our  health  reform  act  that  we  have  passed,  we  have  com- 
bined really  sort  of  all  of  our  leverage  into  one  department  and  so 
many  areas,  many  times  it's  like  you  are  building  a  new  bureauc- 
racy. We're  taking  kind  of  what  is  out  there  and  putting  it  togeth- 

Our  cost  containment  board  will  reside  at  the  same  place  where 
we  in  effect,  in  the  same  area,  in  the  same  department  where  we 
have  control  over  physicians,  where  we  have  control  over  in  effect 
the  hospitals  and  the  medical  care  providers  who  are,  you  see, 
bringing  them  all  in  together. 

We  in  Florida  have  an  aggressive  fraud  detection  unit  and  we 
are  making  some  pretty  strong  cases  and  we  have  certainly  had 
some  problems  in  Florida,  as  this  committee  knows,  but  we  are 
now  aggressively  pursuing,  and  we  run  a  profile  that  we  pretty 
well  can  tell  if,  you  know,  some  problems  are  out  there  or  where 
we  should  look  if  we  see  certain  things  start  showing  up  on  that 
profile.  It's  like  the  IRS  does  on  our  tax  returns,  the  way  they 
screen  them. 

That's  been  very  helpful  to  us.  I  think  that  is  something  that  can 
be  done  and  as  I  say  we  are  going  much  further  towards  cost  con- 
tainment. We  are  going  to  direct  and  manage  care.  We  are  doing 
things  like  allowing  physicians  that  participate  in  Medicaid  to  per- 
haps have  some  of  the  State's  sovereign  immunity  so  not  be  subject 
to  some  of  the  malpractice  claims.  That's  a  hammer  and  a  carrot, 
you  know,  as  you  go  into  that,  so  we  are  taking  a  number  of  steps 
to  do  that  and  I  would  say  we  are  administering  a  Medicaid  pro- 
gram in  a  pretty  efficient  way  but  we  intend  to  build  it  up  even 
stronger  in  our  detection  methods. 


Mr.  Rowland.  You've  been  working  with  the  Florida  Medical  As- 

Governor  Chiles.  Yes,  sir.  Oh,  another  thing  I  wanted  to  tell  you, 
part  of  the  legislation  we  passed  will  prohibit  physician-owned  clin- 
ics being  able  to  refer  and  I  think  we're  landmark  legislation  in 
that  regard.  We  have  given  them  a  couple  of  years  to  just  termi- 
nate those  clinics  and  so  you  will  not  have  physicians  referring  pa- 
tients to  clinics,  to  labs  in  which — or  other  facilities  that  they  have 
an  interest  in. 

Mr.  Rowland.  You  have  been  working  with  the  Florida  Medical 
Association,  I  assume,  in  putting  this  together. 
Governor  Chiles.  Yes. 

Mr.  Rowland.  And  do  you  have  a  good  reception  from  them  

Governor  Chiles.  Yes,  sir. 

Mr.  Rowland.  Do  you  have  a  good  reception  insofar  as  the  cost 
containment  fees?  Are  they  receptive  to  accepting  

Governor  Chiles.  Well,  yes  they  are.  They  were  very  supportive 
of  our  legislation,  but  understand,  what  our  legislation  has  done  is 
really  said  we  are  going  to  give  the  doctors,  the  insurance  provid- 
ers, the  business  community,  everybody  a  period  of  time  to  accom- 
plish this  coverage  on  a  voluntary  basis. 

While  that  is  going  on,  we  are  putting  together  a  board  that  will 
determine  what  additional  steps  be  taken  and  as  of  December  of 
1994,  if  we  have  not  covered  people,  we  will  be  ready  to  move  for- 
ward with  pay-or-play  or  other  mandatory  provisions,  so  what  the 
Medical  Society  and  all  of  the  groups  have  bought  in  to  the  con- 
cept, you  know,  that  we  have  drawn  the  line  in  the  sand.  It's  got  to 
be  done  by  1994  and  so  in  effect  we  have  sort  of  set  the  dimensions 
of  the  playing  field. 

Now  there  are  going  to  be  some  knock-down,  drag-outs  between 
now  and  then  as  to  how — as  we  get  there,  but  everybody  has 
bought  in  at  this  stage  that  we  are  going  to  get  it  done,  that  they 
have  to  participate,  and  so  

Mr.  Rowland.  Where  is  your  principal  opposition  to  this  propos- 
al? Trial  lawyers  I  am  sure  are  going  to  be  opposed  to  some  immu- 

Governor  Chiles.  Well,  the  trial  lawyers  were  very  opposed  to  a 
general  immunity. 

Basically  as  we  have  restricted  it,  you  know,  to  the  work  on  Med- 
icaid patients,  they  have — you  know,  part  of  that  opposition  has 

Generally  speaking,  I  think  to  start  with  everyone  had  wanted 
something  different  but  I  think  they  began  to  realize  that  Florida 
was  serious,  that  we  were  going  to  go  in  this  direction,  that  we 
were  going  to  give  a  period  of  time  to  see  if  it  could  be  done — in 
other  words,  we  called  their  bluff,  basically,  to  all  of  the  groups 
that  say  the  private  sector  can  do  this,  we  can  do  a  voluntary 
thing.  We  said  fine;  we'll  give  you  till  December  of  1994  to  do  it 
and  we'll  put  all  of  these  steps  in  place  to  help  and  that's  commu- 
nity rating. 

You  know,  one  of  the  big  problems  is  where  a  small  business  gets 
rated  totally  different  or  if  a  small  business  has  one  person  with  a 
disease  or  has  had  a  pre-existing  disease  it  blows  them  out  of  the 
water,  so  community  rating,  pool-buying,  all  of  these  are  steps  that 


we  think  will  help  take  part  of  that  2V2  million  out.  The  Medicaid 
buy-in  is  a  big  step  to  take  a  portion  of  the  2y2  million  out. 

We  think  that  with  the  combination  of  those  things  we  really 
think  it  is  possible  to  get  there,  but  if  we  don't  for  that  piece  that's 
left,  again,  everybody  knows  that  we  are  going  forward  with  some- 
thing mandatory. 

Mr.  Rowland.  This  buy-in  would  be  indexed? 

Governor  Chiles.  Yes,  sir.  See,  what  we  would  be  asking  is  that 
we  be  able  to  go  above  the  poverty  rate. 

Now,  this  would  cost  the  Federal  Government  some  money,  but 
we  would  match  it  with  State,  55  to  45.  We  estimate,  for  $1  billion, 
the  Federal  Government,  matched  by  about  $850  million  from  the 
State,  that  we  could  cover  this  V^h  million  people. 

Now,  when  you  look  at  what  it  cost  the  Federal  Government 
from  last  year  to  this  year  in  the  increase  in  the  Medicaid  cost, 
that  was  $600  million.  So,  the  president  and  certain  people  say  this 
has  to  be  cost  effective. 

Hell,  we  can  almost  assure  it  is  cost  effective  in  the  first  year, 
because — and  again,  if  you  subscribe  to  the  theory  which  I  so 
strongly  do,  until  you  provide  access  to  everyone,  you  cannot  con- 
trol costs. 

I  used  to  think  you  had  to  control  costs  before  you  provided 
access.  Now  it's  clear  that  people  get  health  care.  They  go  to  the 
emergency  room.  They  wait  until  they  are  so  sick,  and  they  get 
their  care  in  a  way  that  is  much  more  expensive. 

So,  until  we  provide  that  family  doctor  for  them,  we  will  not  be 
able  to  manage,  you  know,  the  health  care,  and  of  course,  we  are 
trying  to  get  away  from  fee  for  service  and  go  to  managed  care.  All 
of  those  things  are  part  of  what  we  are  trying  to  do. 

Mr.  Rowland.  The  funding  will  be  principally  Federal  and  State. 

Governor  Chiles.  Yes. 

Mr.  Rowland.  Has  any  thought  been  given  

Governor  Chiles.  No.  We  anticipate  that,  from  the  private  sector, 
again  because  of  the  hammer  that  we  have  got,  that  we  are  going 
to  have  much  more  participation,  some  from  the  private  sector,  as 

Mr.  Rowland.  The  private  sector  as  well? 
Governor  Chiles.  Yes,  sir. 

Mr.  Rowland.  What  about  local  government,  county  and  city 
government?  Has  any  thought  been  given  to  involving  them  as 

Governor  Chiles.  Well,  in  Florida,  I  might  say,  we  have  just 
passed  a  reorganization  of  our  health  delivery  service  which  decen- 
tralizes it  and  brings  it  back  under  local  control.  We  think  that  is 
very  much  going  to  make  a  partner  of  the  local  county  and  city 
government  in  all  of  these  steps  that  we  are  taking. 

Mr.  Rowland.  So,  you  are  looking  at  Florida  as  being  a  demon- 
stration project  

Governor  Chiles.  Yes,  sir. 

Mr.  Rowland  [continuing].  To  see  how  this  would  work. 
Governor  Chiles.  Yes,  sir. 

Mr.  Rowland.  You  are  not  aware  of  any  other  State  having  a 
similar  proposal. 


Governor  Chiles.  Well,  let  me  tell  how  we  would  differ,  sort  of, 
from  the  Oregon  proposal,  maybe. 

Oregon  decided  how  many  dollars  they  had  to  spend  and  then,  in 
effect,  built  their  benefit  package  based  on  the  dollars  they  had  to 

We  are  trying  to  reverse  that  and  say  we  want  to  build  a  basic 
benefit  package  based  on  need,  what  we  think,  really,  a  family 
should  have  and  then  we  will  put  together  the  dollars  to  take  care 
of  that  need. 

So,  I  would  say  Oregon  is  trying  to  do  what  we  are  doing. 
Hawaii,  with  their  sort  of  single  plan,  is  trying  to  do  that,  as  well. 

I  think  4  or  5  ought  to  experiment,  maybe  up  to  10,  and  let  us 
see  what  works  out  there. 

Mr.  Rowland.  I  see  my  time  has  expired. 

Mr.  Chairman,  I  hope  we  come  back  for  another  round  of  ques- 

Mr.  DiNGELL.  It  is  the  Chair's  plan  to  hear  from  the  Governor  in 
any  way  he  wants  and  to  allow  the  members  to  explore  these  ques- 
tions with  him  as  fully  as  possible. 

Mr.  Rowland.  Thank  you. 

Mr.  DiNGELL.  The  gentleman  from  Florida,  Mr.  Bilirakis. 
Mr.  Bilirakis.  Thank  you,  Mr.  Chairman. 

Just,  I  guess,  a  generic  question  but  a  very  significant  one,  Gov- 
ernor. You  have  been  talking  about  the  Florida  plan  with  Con- 
gressman Rowland.  I  am  sure  you  know  that  some  sort  of  a  nation- 
al health  plan,  whatever  the  title  might  ultimately  be,  is  on  a  rela- 
tively fast  track  up  here. 

I  do  not  think  any  of  us  anticipate  anything  like  that  in  the  year 
1992,  but  hearings  are  already  being  held.  I  am  not  sure  if  any 
markups  will  be  held,  but  in  any  case,  we  do  not  expect  anything 
on  the  floor  this  year,  but  it  is  on  a  fast  track. 

Now,  you  basically  used  the  term  "the  solution"  or  something  to 
that  effect,  and  I  do  not  mean  to  pit  your  ideas  or  our  parochial 
Florida  ideas  against  the  Federal  Government  or  against  the  Con- 
gress, but  might  you  be  suggesting  that  it  would  be  best  if  the  Fed- 
eral Government  passed  laws,  and  addressed  the  question  of  flexi- 
bility and  waivers  and  the  use  of  the  Medicare  dollars  and  then 
leaving  it  up  to  the  States,  encouraging  the  States  somehow  to  pass 
their  own  particular  plans,  rather  than  a  national  plan? 

Governor  Chiles.  Well,  we  need  the  Federal  Government  as  a 
partner  to  ultimately  take  care  of  this  problem.  I  am  not  going  to 
tell  you  that  we  can  totally  do  it  on  our  own,  but  I  guess  there  are 
two  points  I  want  to  make. 

One,  if  the  Federal  Government  passed  a  national  plan  today,  I 
would  hope  that  would  not  be  in  the  old  mode  that  we  used  to  do 
things  that  was  top-down,  that  told  every  State  exactly  what  they 
had  to  do  and  how  they  had  to  do  it,  and  the  old  way  that  we  did 
things,  because  that  is  where  I  think  we  get  a  lot  of  the  problems. 

States  are  unique.  They  have  different  problems.  They  have  dif- 
ferent capabilities. 

Something  that,  again,  provided  outcome  measures  that  the 
States  had  to  comply  with,  the  States  having  to  come  up  with  a 
plan  that  would  pass  muster  of  certain  requirements,  all  of  that,  I 


think,  would  be  good.  The  Federal  Government  needs  to  follow  its 

It  needs  to  be  able  to  monitor  and  audit  its  dollars  and  should 
not  just  pass  the  money  down,  but  the  more  specificity  there  is  in 
the  national  plan  of  locking  it  in,  the  more  problems  we  will  have 
of  ever  niaking  that  work,  because  again,  it  has  to  be  administered 
line  by  line,  with  all  kind  of  personnel,  and  the  bureaucracy  gets 
into  it,  and  then  any  change  would  go  back  into  a  waiver  process 
and  all. 

So,  the  more  flexible  it  could  be,  the  more  goal  oriented,  the 
more  outcome  measured  that  it  could  be,  it  would  be  better. 

Now,  what  we  are  saying  is — and  you  said  relatively  fast  track. 
These  cases  that  I  am  talking  about  are  occurring  in  Florida  today, 
and  they  have  been,  and  we  cannot  wait  or  we  should  not  be  wait- 

So,  we  are  saying,  in  effect,  even  if  it  was  the  same  amount  of 
dollars,  but  we  would  like  to  ask  for  a  little  bit  more  for  the  buy-in 
that  I  have  talked  about,  free  us  up  and  let  us  demonstrate,  you 
know,  some  of  the  things  that  work  that  would  again,  I  think,  give 
the  ability  to  draw  the  better  national  plan  so  it  would  show  why  it 
needs  the  flexibility,  why  it  needs  those  things,  and  the  other  thing 
is,  politically,  as  we  are  talking,  nothing  is  going  to  happen  this 

If  something  like  the  Leahy  bill  passed  or  a  similar  bill  that  is  on 
the  House  side  that  gave  some  States  sort  of  blanket  waivers,  I 
think  that  would  be  the  best  thing  that  could  possibly  happen. 

Mr.  BiLiRAKis.  Well,  you  have  been  up  here  long  enough  to  know 
that  probably  anything  that  we  would  do  would  have  strings  at- 
tached and  the  specificity  that  you  would  not  like  from  the  stand- 
point of  the  States. 

Governor  Chiles.  Well,  for  the  mere  thing  that  we  are  asking 
about  and  the  chairman  has  responded  so  favorably  that  you  are 
going  to  try  to  do  something  to  give  us  these  waivers,  the  reason 
we  need  these  waivers  to  start  with  is  because  the  way  that  the  old 
plan  of  Medicaid  and  Medicare  is  drawn  so  tight  that  something 
comes  along,  like  AIDS,  we  never  anticipated  before — now,  we  are 
determining,  in  Florida,  we  have  the  lowest  percentage  of  our  pop- 
ulation that  goes  into  nursing  homes  of  any  State  in  the  Nation. 
Thank  goodness  we  do,  because  we  have  the  highest  percentage  of 

The  reason  we  have  that  is  because  we  work  very  hard  with 
home  health  care,  with  home  services,  and  we  need  all  of  the  waiv- 
ers we  can  get  to  say  let  us  use  part  of  the  nursing  care  dollars  to 
keep  those  people  at  home,  where  we  do  it  for  a  tenth  of  the  cost 
and  give  them  a  quality  of  life  that  is  much  better. 

So,  all  of  that  dictates  that  you  do  not  want  to  draw  this  next 
national  health  care  bill  in  the  same  way  we  used  to  do  things. 

Mr.  BiLiRAKis.  Thank  you.  Governor. 

Mr.  Chairman,  I  guess,  in  the  process  of  any  sort  of  a  national 
plan  that  we  come  up  with,  we  will  have  to  obviously  have  to  con- 
sider in  that  formula  States  like  Florida  that  will  have  already 
passed  their  own  plans,  and  thus  far,  I  do  not  see  that  happening 
up  here. 

Thanks  so  much,  Lawton.  It  is  always  great  to  see  you. 


Governor  Chiles.  Thank  you. 

Mr.  BiLiRAKis.  Mr.  Chairman,  thank  you  for  your  courtesy  in  al- 
I    lowing  me  to  ask  my  questions. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman. 
I       The  Chair  is  going  to  make  an  observation. 

I       This  is  one  of  the  things  on  which  Mr.  Waxman  and  I  are  now 
I    working,  and  we  do  intend  to  consider  States  that  are  innovative, 
I    that  are  trying  to  lead,  giving  them  an  opportunity  to  go  forward 
i    in  the  best  way  possible  in  the  full  expectation  that  they  are  going 
to  make  a  valuable  contribution  to  figuring  out  how  we  are  going 
to  move  this  current  inefficient,  wasteful,  and  insane  system  of  pro- 
viding health  care  toward  something  which  makes  better  sense 
from  everybody's  view. 
Governor  Chiles.  Mr.  Chairman,  you  can  go  ahead  and  just 
I    speak  strongly  on  it.  You  do  not  have  to  hold  back. 

Mr.  DiNGELL.  The  Chair  is  going  to  recognize  our  friend,  Mr. 
i  Upton. 

I       Mr.  Upton.  Thank  you,  Mr.  Chairman. 

Governor  Chiles,  I  deeply  appreciate  your  willingness  to  come 
this  morning  and  testify  on  the  track  record  in  Florida. 

The  chairman  had  some  hearings  a  couple  of  weeks  ago  in  De- 
troit, where  we  talked  specifically  about  trying  to  get  a  waiver  for 
a  Wayne  County  project,  and  I  am  sure  that  issue  will  come  up 
[    later  this  morning,  when  HHS  is  here  to  talk  a  little  bit  about 

their  waivers  and  flexibility  that  they  are  going  to  need. 
I      I  guess  the  bottom  line  that  I  would  like  to  solicit  your  advice 
"    and  thoughts  on — I  am  sure  that  you  are  probably  aware  of  Presi- 
dent Bush's  comprehensive  health  plan  that  he  came  out  with  ear- 
lier this  year,  and  on  page  66  of  their  book,  it  talks  about  a  key 
component  that,  ''Most  importantly,  under  current  law.  States 
must  go  through  a  waiver  process  to  secure  Federal  approval  to  es- 
tablish a  coordinated  care  program.  Complex  statutory  waiver  re- 
quirements are  overly  rigid  and  have  blocked  a  number  of  initia- 
tives that  long  have  been  underway  in  the  private  sector." 
Would  you  agree  with  that  statement? 
Governor  Chiles.  Yes,  sir. 

I Mr.  Upton.  I  looked  a  little  bit  at  the  Oregon  plan.  Maybe  what 
we  are  trying  to  do  in  Michigan,  through  Wa5me  County — flexibil- 
ity in  trying  to  get  some  waivers  from  HCFA  seem  to  be  exactly 
what  we  ought  to  be  looking  at,  and  your  testimony,  I  think,  under- 
scores that  thought. 
Governor  Chiles.  Yes,  sir,  very  much  so,  and  the  fact  that,  once 
I  that  ground  has  been  chartered  and  you  see  that  a  waiver  works, 
why  should  another  State  wanting  to  do  the  same  thing,  another 
county,  why  should  they  have  to  go  through  the  same  hoop  and 
hurdle,  and  why  should  existing  States  have  to  go  back  every  2  or  3 
years  to  renew  their  waiver  at  great  expense  and  great  cost? 

All  of  that  is  just  sort  of  a  total  waste,  and  it  shows  you  what 
this  bureaucracy  is  doing  to  us. 
I       Mr.  Upton.  Now,  it  is  my  understanding  that  the  waiver  for 
Florida  has  yet  to  be  granted.  Is  that  correct? 

Governor  Chiles.  We  have  some  waivers  that  have  been  granted, 
but  what  we  are  seeking  now  is  literally  sort  of  four  different  areas 


of  waivers,  and  those  have  not  been  granted.  None  of  those  have 

Mr.  Upton.  What  have  been  some  of  the  hoops  and  hurdles  that  i 
you  have  been  forced  to  go  through?  I 

Governor  Chiles.  Well,  I  mentioned  earlier,  it  took  us  28  months  | 
to  get  a  waiver  to  be  able  to  treat  AIDS  patients  at  home  and  have 
the  flexibility  of  using  some  of  the  dollars  that  we  were  using  treat- 
ing them  in  a  hospital  setting,  which  cost  us  much  more  money, 
did  not  give  them  a  quality  of  life  that  was  appropriate,  but  it  took 
us  28  months  to  go  through  that  hurdle.  j 

I  am  sure  other  States  are  out  there  trying  to  get  some  waivers  | 
on  that  now.  Why  shouldn't  we  just,  say,  issue  something  that  says  i 
you  can  use  your  AIDS  money  for  any  person  it  would  be.  ' 

The  cold  bed  formula  is  an  interesting  way  of  thinking.  I  do  not  \ 
know  whether  you  understand  that  or  not,  and  I  am  not  sure  I  do, 
but  basically  what  we  did  is  we  said  if  you  had  a  person  that  was 
eligible  or  could  have  been  in  a  nursing  home  and  you  could  show 
that  you  remove  that  person  from  the  nursing  home  and  treated 
them  in  a  home  setting,  you  could  use  the  money.  Now,  today, 
under  that  formula,  you  have  got  to  show  that  you  have  the  bed  in 
the  nursing  home  before. 

Now,  Florida,  every  month,  has  all  of  these  people  over  65  and  70 
moving  into  the  State.  Why  do  we  have  to  go  build  the  beds  in  the 
nursing  home  to  show  that  we  have  got  the  cold  bed?  i 

Why  can't  we  say,  you  know,  if  that  person  would  be  eligible,  if  , 
they  meet  the  criteria,  you  can  use  that  money  to  keep  them  at 
home?  It  is  going  to  save  the  Federal  Government  money,  it  is  | 
going  to  save  the  State  money,  and  allows  those  people  to  have  a 
quality  of  life.  i 

Now,  the  hoop  we  have  to  go  through  is,  in  effect,  to  show  you  i 
have  a  nursing  home  space  that  is  there  that  you  take  someone  out  | 
of  or  that  you  do  not  use,  an  empty  space.  That  is  crazy.  i 

Mr.  Upton.  You  talked  a  little  bit,  in  an  earlier  response  to  a  I 
question,  that  you  compared  Florida's  plan  to  Oregon's.  | 

Whereas  Oregon  may  have  looked  at  the  money  first  and  then  | 
looked  at  the  programs,  you  have  been  looking  at  the  need  first  I 
and  then  try  to  put  the  program  back  together  that  way. 

I  know  that  Florida  has  had  many  of  the  same  budget  troubles  | 
that  the  State  of  Michigan  has  had,  and  I  know  that — and  I  re-  j 
member  when  you  called  a  special  session,  back,  I  guess  it  was  last  i 
December,  to  look  at  where  the  budget  could  be  cut.  ' 

Governor  Chiles.  We  are  in  another  special  session  now.  j 

Mr.  Upton.  Are  you?  I 

Governor  Chiles.  Yes,  sir.  I 

Mr.  Upton.  I  know  that,  I  think,  last  December,  the  session  re-  i 
suited  in  the  termination  of  the  medically-needy  program,  which  j 
scaled  back  Medicaid  assistance  for  elderly  and  disabled  folks  with 
incomes  between  90  and  100  percent  of  the  poverty  line.  | 

Obviously,  all  of  your  budget  decisions  are  because  of  very  tough 
choices  that  you  have  had  to  make,  but  did  you  make  that  decision 
more  or  less  on  budgetary  grounds? 

Governor  Chiles.  Strictly  on  budgetary  grounds.  It  is  a  dumb  cut,  I 
and  we  said,  you  know,  at  the  time  that  we  had  to  make  it,  because  \ 

j  391 

we  had  a  $600  million  shortfall,  that  it  ought  to  be  one  of  the  first 
things  that  we  address. 
I      In  the  investment  budget  that  I  put  before  the  legislature  this 
'   time,  it  is  one  of  the  key  items  that  we  say  it  does  not  make  sense 
i    to  cut  that  money.  When  we  reached  that — see,  I  have  had  to  cut 

about  $2  billion  in  the  last  year. 
'      I  said  the  first  billion  I  do  not  think  will  be  missed.  When  we  got 
[   into  the  second  billion,  we  began  to  cut  good  programs.  That  was 
I   one  of  the  very  good  programs  we  had  to  cut.  Now,  we  cut  that  one 
because  we  cannot  cut  the  Medicaid  for  the  poverty.  It  was  an  elec- 
tive program. 

We  also  cut  the  program  that  provided  prescription  drugs  for  el- 
derly citizens  that  keeps  them  out  of  nursing  homes,  again  totally 
wrong,  and  we  say  now  that  is  why  we  need  to  have  some  addition- 
al income  in  Florida,  because  those  programs  are  not  savings.  They 
I   are  transferring  of  cost.  They  are  transferring  of  suffering.  They  do 
I    not  make  sense  at  all. 
'      Mr.  Upton.  Thank  you. 
i      I  yield  back,  Mr.  Chairman. 

Mr.  DiNGELL.  The  Chair  thanks  the  gentleman. 
I      Governor,  you  have  talked  about  the  waiver  problem,  and  I 
would  like  to  ask  some  question*  on  that. 

First,  what  happens  to  the  Florida  plan  if  you  do  not  get  the 
waivers  that  you  have  requested  soon? 

Governor  Chiles.  Well,  we  go  forward  as  far  as  we  possibly  can 

Mr.  DiNGELL.  You  will  be  hamstrung  somewhat  by  the  absence  of 
those  waivers. 

Governor  Chiles.  Yes,  sir.  We  will  not  be  able  to  get  to  our  goal 
in  1994,  and  we  will  not  be  able  to  mandate  some  of  the  coverage 
that  we  are  talking  about,  because  we  will  not  have  the  ERISA 

So,  pay-or-play — in  other  words,  in  Florida — ^you  can  pass  a  pay- 
or-play  up  here.  I  cannot  pass  one  in  Florida  because  of  things  like 
ERISA  and  other  requirements  that  you  have. 

Mr.  DiNGELL.  Tell  me.  Governor,  you  will  also  see,  then,  a  cut  in 
the  level  of  benefits  as  well  as  a  retarding  of  the  time  at  which 

Governor  Chiles.  What  we  will  see,  Mr.  Chairman,  is  a  contin- 
ued growth  in  the  health  care  cost.  This  Medicaid  growth  over  the 
last  10  years  in  Florida  was  365-percent  increase. 

It  is  the  driving  force  that  takes  all  of  my  money,  so  I  cannot 
spend  money  for  education  or  I  cannot  spend  money  for  law  en- 
forcement or  I  cannot  spend  money  for  other  programs  that  I  want 
to  in  my  State,  because  I  am  forced,  under  your  Federal  mandates. 
Congressman  Rowland,  that  I  helped  to  pass  when  I  wais  up  here — 
you  know,  it  siphons  all  of  the  money,  and  we  cannot  control  the 
cost,  because  it  does  not  give  us  the  ability  to  manage  care,  it  does 
not  give  us  the  ability  to  get  away  from  fee-for-service,  those  kind 
of  things,  and  without  that  and  just  providing  access,  we  know  we 
will  never  be  able  to  control  our  costs. 

Mr.  DiNGELL.  Does  this  proposal  that  you  are  discussing  with  us 
now  give  you  the  ability  to  control  costs? 

Governor  Chiles.  Yes,  sir. 


Mr.  DiNGELL.  How  about  the  cost-benefit  ratios  from  the  stand- 
point of  the  State  and  from  the  standpoint  of  the  Federal  Govern- 

Governor  Chiles.  It  will  help  both,  because  if  Florida's  grew  365 
percent,  the  Federal  share  is  55  percent  of  that,  and  you  know 
what  that  portion  of  our  national  budget  that  has  been  and  how 
out-of-control  it  is. 

So,  it  is  growing  exponentially,  and  unless  we  do  something  to 
control  that,  we  will  not  control  costs,  and  that  is  why  we  are 
saying  access  is  the  key,  with  cost  containment,  with  going  to  man- 
aged care  rather  than  fee-for-service,  with  making  sure  we  control 
some  of  the  liability  costs. 

It  is  putting  all  of  these  things  together  with  having  the  private 
sector  participate  more,  with  having  some  kind  of  a  minimum  ben- 
efit package  that  gives  that  basic  family  the  coverage  that  they 

Mr.  DiNGELL.  Now,  Governor,  I  think  this  is  probably  something 
you  would  like  to  submit  for  the  record,  and  I  think  maybe  you 
would  like  to  have  your  health  people  give  you  and  us  more  guid- 
ance. But  preliminarily,  how  would  you  guide  us  in  trying  to  define 
the  yardstick  by  which  State  plans  should  be  evaluated  under  a  na- 
tional health  program  if  we  afford  States  the  latitude  to  do  a  rea- 
sonable and  

Governor  Chiles.  I  would  like  to  submit  that  for  the  record,  but  I 
can  just  tell  you  briefly,  what  we  would  do  is  we  would  suggest  and 
only  suggest,  because  the  expertise  of  yourself  and  Henry  Waxman 
and  all  of  the  other  people  that  have  worked  in  this  should  be  used, 
but  what  we  would  say  as  the  criteria  would  be  they  should  be  out- 
come measures  that  you  ought  to  hold  us  responsible  for,  and  the 
outcome  measures  could  be  like,  you  know,  what  would  your  fraud 
ratio  be,  what  would  your  coverage  be?  j 

Even  if  you  wanted  to  say  what  would  your  infant  mortality  re-  | 
duction  be,  what  would  your  low  birth-weight  rate  be,  give  us  some  j 
outcome  measures  or  targets  and  say  we  will  measure  you,  but  we  j 
will  give  you  the  ability  to  determine  how  you  ought  to  get  there,  | 
because  we  have  different  areas  in  my  State,  rural  and  urban.  | 

I  need  to  treat  those  in  different  ways,  and  if  you  mandate  some- 
thing that  I  have  to  do  everjrthing  in  exactly  the  same  way — so,  the  . 
more  flexibility,  the  more  freedom  of  passing  the  money  down,  but 
then  make  us  have  to  enter  into  an  agreement  with  Washington  of  I 
what  outcomes  we  will  produce,  and  then  police  us  by  how  we  meet 
those  outcomes,  and  make  us  show  you  what  the  audit  trail  would 
be,  because  there  ought  to  be  a  way  of  auditing  that,  and  I  could 
provide  that  better  for  the  record  in  more  detail.  ' 

Mr.  DiNGELL.  Governor,  if  the  committee  were  to  suggest  that  we 
ought  to  change  the  law  with  regard  to  waivers,  to  encourage  the 
kind  of  innovative  thing  you  are  trying  to  do  with  regard  to  the 
health  care  plan  that  you  have  been  discussing  with  us  this  morn- 
ing, how  would  you  guide  us?  f 

How  would  you  change  that  waiver  law,  and  how  would  you 
change  other  practices  of  the  Federal  Government  with  regard  to  j 
Medicaid,  to  assist  you  in  carrying  out  those  purposes?  j 

Governor  Chiles.  The  first  and  sort  of  simplest  thing  would  be 
where  waivers  have  been  granted  before,  that  ought  to  be  a  blan- 

]  393 

I    ket.  States  should  not  have  to  go  through  the  same  thing,  if  they 

I  have  a  similar  situation.  States  should  not  have  to  renew  waivers 

II  that  have  been  successful  in  the  past.  That  just  should  be  a  given. 

I  Mr.  DiNGELL.  That  is  part  of  it,  and  an  important  part  of  it. 

II  Governor  Chiles.  Yes,  sir. 

j       Mr.  DiNGELL.  I  concur  with  that. 

Governor  Chiles.  Yes.  That  is  the  simplest  thing. 
I       Mr.  DiNGELL.  Yes.  That  is  the  easiest  one,  right? 
;       Governor  Chiles.  Yes.  That  ought  to  be  easy,  but  today,  it  is  not 

!Mr.  DiNGELL.  The  Secretary  is  going  to  be  before  us  to  discuss 
Governor  Chiles.  I  think  something  like  the  Leahy  Bill  and  what 
is  the  House  Bill? 
[I       Mr.  Mangano.  McDermott. 

I  Governor  Chiles.  The  McDermott  bill  provides  for  5  or  10  States 
to  just  be  given  some  blanket  waivers  in  these  areas,  and  then  you 
monitor  them  and  see  how  they  do.  I  think  that  would  be  a  major 
I  step,  that  or  simpler — something  like  that  tacked  on  to  whatever 
passes  out  this  year. 

We  think  Florida  would  be  one  of  those  States,  because — and  we 
would  like  to  be  one  of  those  States.  We  think  that  would  allow  us 
to  experiment  with  the  four  areas  that  we  are  talking  about.  Other 
States  might  pick  a  little  different  area.  I  am  sure  Hawaii  would 
jump  into  that,  Oregon  would  jump  into  that,  Arizona  would  jump 
into  that  and  there  are  some  other  States  that  would  be  out  there. 
I  think  you  would  get  a  lot  of  data  very  quickly. 

Mr.  DiNGELL.  Governor,  you  are  of  the  view  that  then  your  State 
plan,  the  State  Care  Program  you  have  been  discussing  with  us, 
will,  in  fact,  be  cost-benefit  favorable? 

Governor  Chiles.  Absolutely.  Now,  Mr.  Chairman,  I  cannot  say 
that  it  would  be  that  on  year  one;  but  if  you  want  to  take  5  years,  I 
can  show  you  very  quickly  how  it  would  be  cost-beneficial,  and 
probably  within  less  than  that  it  would  be  cost-beneficial. 

Mr.  DiNGELL.  Governor,  would  you  just  want  to  comment  on  how 
the  absence  of  national  health  care  policy  affects  the  States,  both 
in  terms  of  providing  health  care  to  their  citizens  and  also  

Governor  Chiles.  Mr.  Chairman,  it  is  the  greatest  problem  that 
my  State  faces,  our  people  face.  I  think  it  is  the  greatest  domestic 
problem  that  we,  as  a  country  have.  It  is  also  sapping  all  of  our 
reserves  and  our  money  for  the  reason  that  we  are  sort  of  afraid  to 
go  into  it  because  it  is  going  to  cost  money.  We  are  taking  money 
that  we  could  use  for  reindustrializing  this  country,  for  re-educat- 
ing this  country,  for  retraining,  for  retooling.  All  of  those  dollars 
are  being  eaten  up  and  they  are  producing  nothing  for  us  because 
our  population  is  not  even  health  in  compared  to  the  rest  of  the 
developed  nations  because  of  the  way  we  do  it.  It  is  the  greatest 
waste  that  is  out  there.  It  is  the  most  single  thing  I  think  now  that, 
in  effect,  the  Cold  War  is  over,  that  we  ought  to  be  addressing. 

You  have  always  heard  me  say  before  the  deficit  is  the  greatest 
problem,  and  it  is;  but,  unless  you  address  the  health,  you  cannot 
address  the  deficit. 

Mr.  DiNGELL.  Because  this  is  one  of  the  entitlement  programs 
that  is  causing,  in  a  very  major  way  



Governor  Chiles.  Absolutely. 

Mr.  DiNGELL  [continuing].  The  deficit,  which  is  ongoing. 
Governor  Chiles.  Absolutely.  Absolutely. 

Mr.  Dingell.  Governor,  I  am  going  to  apologize  to  you.  I  have  to 
leave  to  go  to  another  meeting,  but  Dr.  Rowland  is  going  to  preside. 

I  want  to  express  to  you  my  personal  thanks  and  gratitude  for 
being  here. 

Governor  Chiles.  Mr.  Chairman,  I  want  to  thank  you  and  this 
committee  for  your  courtesy,  but  also  for  what  I  hear  is  a  tremen- 
dously pleasing  sound,  an  encouraging  sound  that  we  can  move  for- 
ward in  a  partnership  with  this.  That  is  exactly  what  we  need. 

We  have  decided,  in  Florida,  we  cannot  wait  for  the  Federal  Gov- 
ernment, but  we  desperately  need  you  as  our  partner  in  this. 

Mr.  Dingell.  Well,  we  are  going  to  begin  doing  some  drafting  in 
the  areas  you  have  been  discussing,  and  also  see  what  should  be 
done  with  the  regulatory  relief. 

I  want  to  express  my  particular  thanks  to  you  and  to  your  people 
down  there  who  have  been  spectacularly  cooperative.  If  you  would 
keep  April  3rd  in  mind,  you  and  I  may  be  out  in  the  woods  with 
some  very  good  friends  doing  something  very  well  worthwhile. 

Governor  Chiles.  Thank  you,  Mr.  Chairman.  That  is  a  magic 
date,  April  3rd. 

Mr.  Dingell.  Doctor. 

Mr.  Rowland  [presiding].  Governor,  I  do  not  know  what  your 
time  constraints  are.  There  are  so  many  things  I  want  to  ask  you. 
There  are  several  areas  that  I  want  

Governor  Chiles.  Mr.  Chairman,  I  have  about  6  minutes — they 
said  5  or  6  minutes. 

Mr.  Rowland.  Left? 

Governor  Chiles.  Yes,  sir. 

Mr.  Rowland.  Gosh,  we  cannot  do  much  in  that  time,  can  we? 

Well,  let  me  ask  you,  or  perhaps  I  should  address  this  to  Rae 
Grad,  who  is  the  executive  director  of  the  Commission  to  Prevent 
Infant  Mortality.  There  is  one  area  that  I  want  to  cover  very  brief- 
ly and  see  how  you  are  trying  to  address  this  in  Florida. 

Governor  Chiles.  Yes,  sir. 

Mr.  Rowland.  When  you  left  the  U.S.  Senate  and  went  to  Flori- 
da and  became  Governor  there,  I  had  the  distinct  feeling  you  had 
jumped  from  the  frying  pan  into  the  fire.  I  am  sure  that  you  will 
be  able  to  deal  with  that  very  well. 

I  want  to  ask  you  a  little  bit  about  the  problem  with  teenage 
pregnancy  that  we  have  in  our  country,  and  how  you  may  antici- 
pate dealing  with  that?  I  have  an  article  here  from  the  Atlanta 
Constitution,  the  day  before  yesterday.  One  of  the  cities  in  the 
lower  part  of  my  State  of  Georgia  has  reported  that  in  1989,  22  per-  | 
cent  of  the  babies  born  in  that  area  were  teenage  mothers.  Every  i 
hospital  in  the  country  has  seen  pregnancy  increase  among  girls  f 
who  are  still  too  young  to  drive,  vote  or  join  the  Army.  I' 

I  met  with  a  group  from  a  clinic  in  my  home  town  of  Dublin,  GA,  j 
who  operate  a  prenatal  and  postpartum  clinic  there,  and  they  tell  ; 
me  that  teenage  and  adolescents  coming  back  for  postpartum  care  | 
are  not  interested  in  birth  control — that  is  not  what  they  want.  { 
They  intend  and  say  quite  frankly,  I  am  going  to  have  another  , 



baby  as  soon  as  I  can.  As  I  mentioned  earlier,  40  percent  of  the  OB 
in  Georgia  now  is  under  the  Medicaid  program. 

Infant  mortality  is  one  of  the  problems  that  we  have  in  this  par- 
ticular  group  of  people.  Do  you  have  any  thoughts  about  how  you 
are  going  to  deal  with  this  problem  in  the  State  of  Florida,  under 
i|  the  proposals  that  you  are  making,  or  have  you  looked  at  that  yet? 

Governor  Chiles.  Part  of  our  investment  budget,  and  it  kind  of 
'!  fits  in  with  this,  is  trying  to  deal  with  that.  I  have  found — our  ex- 
I   perience  has  been,  where  we  have  used  like  resource  mothers,  and 
I  brought  these  women  in  that,  at  the  time  they  were  going  through 
j   their  postpartum  and  the  time  they  were  going  through  their  pre- 
natal  care,  it  was  the  best  opportunity  that  you  had  to  really  coun- 
sel with  a  women.  I  am  not  sure,  in  your  clinic,  whether  they  are 
really  doing  any  counseling, 
j      Resources  Mothers,  as  you  know,  are  taking  somebody  that  suc- 
j   cessfully  raised  their  kids,  they  are  not  a  nurse,  but  they  are  trying 
I   to  tell  these  young  girls  how  they  can  have  a  life  of  their  own  if 
I   they  stay  in  school,  how  they  can  slow  up  that  next  pregnancy,  and 
I   what  the  reasons  are  and  why  the  reasons  should  be  there. 

I  continue  to  hear  the  myth  that  these  women  want  to  have 
these  babies  because  they  get  more  money.  That  is  not  true  in  my 
State.  Hell,  we  pay  just  $20  over  the  minimum  in  AFDC,  so  they 
are  not  getting  more  money.  They — and,  basically,  what  we  found 
is  where  they  are  given  the  right  kind  of  counseling,  we  have  seen 
some  amazing  successes  in  the  return  rate  of  pregnancy.  Normally 
you  could  say  a  13  year-old  having  a  child  is  going  to  have  three  by 
the  time  they  are  18. 

We  have  been  able  to  show,  in  a  number  of  areas,  where  you  can 
reduce  that  at  least  50  percent  and  sometimes  higher.  Now,  the 
other  strategy  that  I  think  works  better  than  anything  I  have  seen 
in  my  State,  is  school-based  health  clinics  that  give  family  plan- 
ning information. 

We  are  encouraging  that,  and  that  is  another  phase  of  our  in- 
vestment budget,  is  to  open  a  number  more.  We  asked  some  coun- 
ties to,  you  know,  provide — see  whether  they  wanted  to,  and  they 
fought  themselves  to  sort  of  get  in  for  the  few  that  we  provided  for. 
We  are  providing  for  more. 

It  will  be  up  to  parents  to  decide  what  kind  of  information  that 
you  give  them.  We  have  the  Quincy  Clinic,  the  school-based  health 
clinic  that  was  at  a  high  school  in  Quincy  FL.,  reduce  teen  preg- 
nancy by  75  percent  in  the  first  year.  That  is  our  standard  or  what 
we  use.  That  is  a  very  very  successful  device. 

I  think — you  know,  what  you  are  seeing  is  sexually  active  teen- 
agers. Trying  to  say  you  are  not  going  to  provide  information  and 
family  planning  devices  or  what  not  is  just  kind  of  crazy. 

We  are  finding,  again,  in  our  postpartum  services,  that  many  of 
these  women  are  asking  for  Norplant.  We  are  trying  to  get  the 
funds  to  be  able  to  provide  it,  which  gives  us  a  5-year  leeway — 
where,  again,  they  requested  it,  it  is  something  they  are  seeking. 

Mr.  Rowland.  One  other  question  that  I  want  to  ask  in  a  differ- 
ent area  that  I  am  very  much  concerned  about,  is  the  spread  of 
AIDS,  and  how  that  is  going  to  impact  adversely,  severely  on  our 
health  care  delivery  system.  It  certainly  is  going  to  cause  a  great 
deal  of  problems  in  any  plan  that  is  put  into  place,  insofar  as  fund- 


ing  is  concerned.  Have  you  given  much  thought  about  the  AIDS 
problem  and  the  increase  in  opportunistic  diseases  such  as  tubercu- 

Governor  Chiles.  Well,  again,  it  goes  a  lot  with  trying  to  get  the 
information  out  there.  Certainly,  what  we  are  seeking  of  trying  to 
be  able  to  treat  the  cases  you  have  in  the  most  economical  way, 
makes  sense. 

Mr.  Chairman,  I  do  not  want  to  say  that  we  have  got  an  answer 
to  it,  because  we  do  not.  In  Florida,  we  are  fourth  in  population 
and,  I  think,  third  in  the  number  of  AIDS  cases,  so  it  is  a  major 
problem  for  our  State. 

Mr.  Rowland.  Thank  you  very  much. 

Mr.  Bilirakis,  do  you  have  any  additional  comments? 

Mr.  Bilirakis.  No  thanks. 

Mr.  Rowland.  Governor,  thank  you  so  very  much. 

Governor  Chiles.  Thank  you,  Mr.  Chairman.  I  do  have  the  oppor- 
tunity to  just  speak  for  a  minute  about  the  Infant  Mortality  Com- 
mission Report,  which  Rae  Grad  is  going  to  testify  in  great  detail.  I 
cannot  think  of  a  better  way  to  illustrate  why  we  have  to  succeed 
in  our  reform  plans  in  Florida,  than  to  talk  about  this  report.  Trou- 
bling trends  persist. 

Two  years  ago  to  the  day,  the  commission  released  the  first 
report  on  troubling  trends,  in  which  we  tried  to  sound  that  loud 
and  clear  warning.  Today,  we  see  that  a  lot  of  people  did  not  hear 
our  warning.  Not  only  is  our  Nation's  progress  slow  in  the  number 
of  areas,  we  are  actually  going  reverse  in  some.  This  cannot  contin- 
ue, if  we  are  going  to  have  healthy  families,  children  that  are  able 
to  learn,  a  productive  workforce  for  the  next  century.  It  is  just  too 
costly,  in  terms  of  money,  human  suffering  and  potential. 

I  am  proud  to  report  to  you  that  we  have  heard  the  message  in 
Florida,  and  we  have  responded  with  our  Healthy  Start  Program. 
In  our  first  year,  the  major  aim  was  guaranteeing  that  all  women 
have  readily  access  to  adequate  prenatal  care  and  their  infants  re- 
ceive the  health  care  they  need.  This  is  front-end,  cost-effective  pre- 

We  are  proud  that  Healthy  Start  and  our  Florida  Health  Plan  is 
going  to  give  us  the  ability  to  go  through  with  that  to  speed  that 
up.  We,  again,  just  say  that  getting  the  ability  to  cut  some  of  the 
Federal  red  tape  would  be  tremendously  helpful. 

I,  again,  congratulate  you  on  all  of  your  service  in  the  Infant 
Mortality  Commission  and  certainly  Rae  Grad  and  all  of  the  people 
that  we  have  who  work  so  hard  there. 

Mr.  Rowland.  Thank  you  very  much  for  being  here  today.  Gov- 

The  next  panel  is  Ms.  Rae  Grad,  Executive  Director  of  the  Na- 
tional Commission  to  Prevent  Infant  Mortality.  She  is  accompanied 
by  Mary  Carpenter,  who  is  a  registered  nurse  also,  and  is  Deputy 

I  thank  both  of  you  for  being  here  this  morning. 

Rae,  you  and  Mary  have  heard  that  testimony  in  this  committee 
is  under  oath.  Do  either  one  of  you  object  to  testifying  under  oath? 
Do  either  one  of  you  desire  counsel?  There  is  a  copy  of  the  rules  of 
the  committee  and  the  subcommittee  in  front  of  you,  if  you,  at  any 
time,  feel  you  need  to  refer  to  those,  they  are  there. 


So,  I  would  ask  you  to  both  rise,  if  you  will,  and  raise  your  right 
[Witnesses  sworn.] 

Mr.  Rowland.  You  may  now  consider  yourself  under  oath.  Let 
I  me  welcome  both  of  you  here.  I  have  been  so  pleased,  over  the  past 
'  several  years,  to  have  the  opportunity  to  work  with  you.  You  have 

both  done  a  wonderful  job  in  trying  to  deal  with  this  problem  of 

infant  mortality. 

So,  you  may  give  us  your  opening  statement  in  any  way  you 


Ms.  Grab.  Yes.  Thank  you  Congressman  Rowland  and  the  com- 

I  have  prepared  many  hearings  and  helped  witnesses  and  read 
I  many  testimonies  myself,  and  what  I  would  like  to  do  is  submit  my 
formal  testimony  for  the  record,  and  spend  my  time  with  you  just 
talking  from  my  heart. 

Mr.  Rowland.  Without  objection. 

Ms.  Grad.  And  from  some  of  my  experience. 

As  you  know,  I  am  here  with  Mary  Carpenter,  my  deputy  direc- 
tor, and  we  will  answer  any  question  afterward,  if  you  would 
choose  to  ask  them. 

We  are  here  to  release  the  report  which  Governor  Chiles  talked 
about,  ''Troubling  Trends  Persist,  Shortchanging  America's  Next 

The  first  report  we  did  on  Troubling  Trends  was  2  years  ago,  it 
had  some  very  dismal  statistics.  I  was  hoping  that  2  years  after 
that  report  we  would  have  a  red,  white  and  blue  report  saying  that 
I  could  retire  and  open  a  restaurant  and  do  something  else  with 
my  time.  It  did  not  work  that  way.  I  am  troubled  that  we  have  to 
submit  a  second  Troubling  Trends  report. 

What  I  would  like  to  do.  Congressman  Rowland,  is  to  be  put  out 
of  a  job.  I  know  that  sounds  strange,  because  I  really  enjoy  my 
work.  I  do  not  get  it.  I  do  not  get  why  I  have  to  write  a  second 
report  like  this,  I  do  not  get  why  I  have  to  testify  in  front  of  you,  I 
do  not  get  why  Mary  and  I  have  to  work  12  and  15  hour  days  and 
most  weekends.  It  should  not  be  this  hard.  This  is  children  we  are 
talking  about,  this  is  babies  we  are  talking  about,  this  is  the  next 
generation  we  are  talking  about. 

So,  why  is  it  so  hard?  Why,  when  I  go  to  parties  and  people  say, 
Rae,  you  have  the  best  job  in  the  world,  motherhood  and  apple  pie, 
it  must  be  so  easy.  I  say,  I  am  tearing  my  hair  out  on  a  daily  basis. 
It  is  not  easy.  In  a  sense,  I  know  I  am  testifying  in  front  of  you,  but 
my  question  goes  back,  why  does  this  problem  have  to  remain?  It  is 
very  troubling  to  me. 

We  have  some  statistics  over  here  that  show,  yes,  invent  mortali- 
ty, overall,  is  coming  down,  it  is  now  at  9.8  deaths  per  1,000  live 
births,  which  is  the  lowest  it  has  ever  been.  Well,  on  the  one  hand, 
I  am  ecstatic,  this  is  great  news.  On  the  other  hand,  I  cry  every 
night,  because  the  way  we  got  to  this  point  is  not  that  we  are  pre- 


venting  low  birth  weight  babies  from  being  born  and  not  because 
we  are  doing  a  better  job  in  prevention;  all  we  are  doing  is  invent- 
ing better  tubes  and  whistles  and  pumps  and  technology,  and  we 
are  saving  low  birth  weight  babies. 

If  you  look  at  a  concomitant  statistic  which  is  in  Troubling 
Trends,  which  is  how  many  babies  are  born  low  birth  weight,  this 
is  the  highest  it  has  been  since  1984-1978.  The  highest  it  has  been. 
Well,  this  is  crazy.  We  should  not  have  to  have  this  problem. 

This  is  not  a  partisan  issue.  I  have  worked  on  this